market analysis

Question 1

What is price elasticity of demand?

Answer 1

• measures the sensitivity of a demand to a change in price
• It is ALWAYS negative as an increase in price leads to a fall in demand, and vice versa

Question 2

How is PED calculated

Answer 2

% change in quantity demanded/ % change in price

Question 3

what is the difference between price elastic and price inelastic demand?

Answer 3

• Price elastic demand: a price change causes an increased change in quantity demanded
• Price inelastic demand: a price change causes a less significant change in quantity demanded

Question 4

How does a change in price affect revenue when demand is price elastic

Answer 4

• lowering the price increases the revenue as sales increase more
• raising the price decreases revenue as demand falls

Question 5

How does a price change affect revenue when demand is price inelastic

Answer 5

• raising the price increases total revenue as demand falls only slightly
• lowering the price decreases total revenue as the increase in sales is small

Question 6

what does it mean if a good has unitary elasticity

Answer 6

• a price change leads to a proportional change in demand
• revenue remains unchanged
• e.g. a 10% price increase results in a 10% demand drop

Question 7

What does income elasticity of demand measure?

Answer 7

measures how demand changes in response to changes in income

Question 8

How do you calculate income elasticity of demand?

Answer 8

% change in quantity demanded/ % change in income

Question 9

how do goods change based on income elasticity

Answer 9

• Normal goods: demand increases as income rises (newspapers, lemonade)
• Luxury goods: demand increases more than proportionally to income (sports cars, vacations)
• Inferior goods: demand decreases as income rises

Question 10

What is market analysis

Answer 10

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

Question 11

What are the characteristics of price elastic goods?

Answer 11

• PED is greater than 1
• lots of substitute goods (soft drinks, cereals)
• Demand for an elastic good is highly responsive to price changes.

Question 12

Characteristics of inelastic goods

Answer 12

• PED lower than 1
• Necessities (water, electricity)
• few or no substitute goods (prescription goods)
• addictive goods (tobacco, alcohol)
• strong brand loyalty (apple)

Question 13

What numbers determine whether a product is price elastic or inelastic

Answer 13

• greater than 1 is elastic
• between 0-1 is inelastic

Question 14

how should a business adjust their strategy based on income elasticity

Answer 14

• if selling luxury goods (YED >1): target high-income consumers and expand in booming economy
• if selling normal goods (0<YED<1): ensure steady supply as incomes rise
• if selling inferior goods (YED<0): expect higher demand during economic downturns

Question 15

what is the purpose of market analysis

Answer 15

• analyse current market conditions
• identify opportunities
• assess competition
• forecast future trends.