Market Analysis

Question 1

What is market analysis

Answer 1

collecting and interpreting data about customers and the market so that businesses adopt a relevant marketing strategy

Question 2

Why do businesses carry out market research

Answer 2

identify, anticipate and ultimately fulfil the needs and wants of existing and potential customers

Question 3

Quantitative data

Answer 3

based on numerical information that can be statistically analysed

Question 4

Qualitative data

Answer 4

information about decisions based on emotions, feelings, opinions and motivations

Question 5

business raises the price of a product then

Answer 5

the quantity demanded by its customers will generally fall

Question 6

Businesses can react to changes in income by

Answer 6

different prices and adjusting stock levels of different products they sell

Question 7

What is price elasticity of demand

Answer 7

It measures the responsiveness of demand to a change in price

Question 8

Price elasticity formula

Answer 8

PED = % change in quanitity demanded / % change in price

Question 9

PED result > 1 means

Answer 9

Its elastic

Question 10

PED result < 1

Answer 10

Its inelastic

Question 11

PED = 1

Answer 11

Unitary elastic

Question 12

description of price elastic

Answer 12

a change in price will cause a more than proportional change in the quantity demanded leading to the level of demand being sensitive to a change in price. eg price increases, demand falls dramatically

Question 13

description of price inelastic

Answer 13

a change in price will cause a less than proportional change in the quantity demanded. level of demand is not sensitive to a change in price eg price increases, demand falls just a little

Question 14

description of unitary elastic

Answer 14

a change in price will cause an equal and proportional change in the quantity demanded

Question 15

what type of products are likely to be price elastic

Answer 15

luxury products (sports cars, exotic holidays, organic bread), if they become more expensive, less people will demand them and vice versa

Question 16

When is inelastic price of elasticity of demand likely to occur

Answer 16

• levels of competition is low
• few substitutes or the goods are necessities or perhaps addictive

Question 17

Businesses in inelastic price elasticity circumstances

Answer 17

• more control over the price than companies in highly competitive markets
• strong branding can also make a product more inelastic
• likely to be necessity products (water, petrol) even if more expensive, there is still demand

Question 18

How will knowing the PED of a product enable to make informed decisions about the price of a product (inelastic and elastic)

Answer 18

If product is inelastic = increase price leading to rise in revenue. Any rise in price will lead to a less than proportional fall in demand. Relationship dependant on other factors like brand loyalty, affordability, competitors’ prices and whether the price has already been increased from a lower level

If a product is elastic = decrease price to increase revenue

Question 19

What does Income elasticity of demand measure

Answer 19

responsiveness of demand to a change in income

Question 20

YED formula

Answer 20

% change in quantity demanded / % change in income

Question 21

the income elasticity of demand is positive > 1

Answer 21

Income elastic, usually applies to luxury goods and services

Question 22

income elasticity is positive for a particular product and is between 0 and 1

Answer 22

Demand is income inelastic, a normal good

Question 23

Income elasticity is < 0

Answer 23

Income elasticity is negative and an inferior good

Question 24

Income elastic descripition

Answer 24

a change in income causes a more than proportional change in the quantity demanded

Question 25

Income inelastic description

Answer 25

a change in income causes a less than proportional change in the quantity demanded

Question 26

Negative income elasticity description

Answer 26

if income rises then demand falls, and vice versa

Question 27

Demand is Price elastic analysis

Answer 27

Prices lowered, rev from each item sold falls, quantity sold increases more than proportionately meaning total rev increases. So makes sense for businesses to cut prices

Question 28

If demand is price inelastic analysis

Answer 28

a rise in price leads to a rise in sales revenue, a fall in price will lead to a fall in sales revenue meaning although sales have increased, the fall in revenue from each item sold results in total revenue falling. it rarely makes sense to cut prices.

Question 29

If demand is unitary elastic analysis

Answer 29

any change in price will lead to a proportional change in demand, meaning revenue will demand the same. it makes sense to cut prices if increased output reduces costs as this will lead to an increase in profits. more units sold could lead to market share increasing.

Question 30

How price inelasticity of demand affects profit

Answer 30

a rise in price will lead to lower sales but increased sales revenue, however the lower sales will mean lower variable costs. So, profits will increase, not just from higher sales revenue but also from lower costs

Question 31

How price elasticity of demand affects profit

Answer 31

If demand is price elastic, an increase in sales revenue can be achieved by lowering price and raising sales. But higher sales also mean higher costs. In this situation, higher profits will only occur if the increase in sales revenue is greater than the increase in costs.

Question 32

why may a business gather information about the PED of its products

Answer 32

• help reduce risk and uncertainly
• knowledge of PED can help the business forecast its sales and set its price
• an informed decision the business will need to know, by how much, demand will fall or rise as a result of the increase or reduction in price.
• depends on the validity of the data; idifficult to gather accurate data on consumer demand.