Theme 1.2 Market

Question 1

Formula for Price Elasticity?

Answer 1

% change in demand
% change in price

Question 2

Demand?

Answer 2

the amount that society is willing and able to buy at a set price at any given point in time

Question 3

What is the demand curve?

Answer 3

a straight line on a curve that shows us how many quantities will be sold per price
If price decreases, QD increases

Question 4

5 factors leading to a change in demand?

Answer 4

Changes in price of substitutes/complementary goods

Change in consumer incomes

Seasonality

Advertising

Fashion, tastes and preferences

Question 5

What is a substitute?

Answer 5

A product that acts as an alternative, creating competition e.g. Samsung and Apple

Question 6

What is a complementary good?

Answer 6

A product that is bought alongside a good or service e.g. chips with fish

Question 7

Is the relationship between price and quantity demanded positive or inverse?

Answer 7

inverse

Question 8

5 factors that lead to changes in supply?

Answer 8

Change in production cost - wages, raw materials, energy prices

Introduction of new technology - Cheaper in long run as less labour needed, cheaper per unit

Indirect taxes - Value added taxes, if taxes are increased it makes cost per unit more expensive

External Shocks - Unexpected events out of businesses control but have direct impact on level of supply (natural disasters, inflation, COVID)

Government subsidies - Finance provided by the government to encourage suppliers to produce making it cheaper for them

Question 9

What is supply?

Answer 9

the amount of a good or service that produces are willing and able to sell at any given price

Question 10

What does the supply curve indicate?

Answer 10

If suppliers are paid more, they will offer higher quantity supply

Question 11

What is a normal good?

Answer 11

One where if consumer income increases, demand will increase and visa versa (has a + sign)

Question 12

What is a subsidy and why is it good for the business?

Answer 12

Finance provided by government to encourage suppliers to produce —> cheaper to produce a product

Question 13

What is an external shock?

Answer 13

Unexpected events out of the businesses control but have a direct impact on level of supply e.g. natural disasters, inflation

Question 14

What is an indirect tax?

Answer 14

value added taxes or duties that makes the cost per unit more expensive

Question 15

Price inelastic?

Answer 15

that if the price changes demand will not significantly change (less than one)

Question 16

5 factors influencing PED

Answer 16

availability of substitutes
Price of competitor goods
Branding
Income
Nature of the good (luxury or necessity)

Question 17

Income elasticity of demand (YED)?

Answer 17

a measure of the responsiveness of demand to a change in income

Question 18

Inferior goods?

Answer 18

when income increases, the demand for a product decreases and visa versa (has a - sign)

Question 19

Formula for YED?

Answer 19

% change in demand/ % change in income

YED can be negative or positive

Question 20

3 Factors influencing YED of a product?

Answer 20

Whether the good is a luxury or necessity

Level of income of consumer (poorer consumers spend their income of necessities)

As income increases, they’re more likely to spend money on luxuries

Question 21

What is income inelastic?

Answer 21

below 1, and the demand will not change much

Question 22

PED?

Answer 22

a measure of responsiveness to of a good’s demand to a change in price

Question 23

Market Segmentation?

Answer 23

A process which helps businesses to divide up the market of potential customers into groups (segments)
e.g. Location, Demographics(age, gender, religion, sexual orientation etc), Behaviour, Lifestyle and Income.

Question 24

2 examples of demographic segmentation?

Answer 24

• Mcdonald’s - the happy meal
• Gymshark - target 18-25 year old

Question 25

3 examples of behavioural segmentation

Answer 25

• Gymshark sell all year round and in all seasons, especially January
• Supermarkets at christmas
• Garden centres in the summer

Question 26

2 examples of lifestyle segmentation?

Answer 26

• Veganism leading to Subway releasing plant-based products
• Gymshark - 18-25 year olds who love fitness

Question 27

2 examples of income segmentation

Answer 27

• Tesla and Rolex target the rich
• Aldi targets the lower class

Question 28

3 benefits of market segmentation?

Answer 28

• Increased brand loyalty and repeat custom
• Enable business to understand and meet the needs of their customers more effectively
• Can charge a higher price due to needs and wants being met

Question 29

3 drawbacks of market segmentation

Answer 29

• Increased costs in research and development
• Additional marketing activities required as the business targets more segments
• Potential for the brand to lose its identity and unable to exploit economies of scale

Question 30

What is lifestyle segmentation?

Answer 30

focused on hobbies and interests of people

Question 31

What are the 5 ways businesses can add value to their products

Answer 31

Convenience, Branding, Quality, USP, Design

Question 32

Example of convenience as a way of adding value to a product?

Answer 32

1kg of watermelon costs 50p, however, a pack of 250g of chunked watermelon costs £5.40 due to convenience of the packaging etc

Question 33

What is an example of branding as a way of adding value to a product?

Answer 33

Plain trainers cost £12, but Nike trainer sells for £100 just because of the brand

Question 34

Example of quality as a way of adding value to a product?

Answer 34

M&S food quality is better than Aldi, which is why they charge more

Question 35

An example of design as a way of adding value to a product?

Answer 35

Aesthetically pleasing will attract customers, Gymshark clothing

Question 36

Example of USP as a way of adding value to a product?

Answer 36

Customers will pay more for food that has been ethically sourced e.g. Lush is being ethical in an unethical market. They say no to animal testing