1.2- The Market

Question 1

Personal selling salesman?

Answer 1

Used to sell cars or home improvements where the profit

Question 2

Direct marketing?

Answer 2

Highly focussed targeted mail based on what customers have bought before

Question 3

Definition of demand

Answer 3

Demand is the amount of a good that consumers are willing and able to buy at a given price

Question 4

Non price factors that effects the demand

Answer 4

Price of substitutes
2. Alternative brands
3. Price of compliments
4. Changes in consumer income
5. Trends in fashion and tastes
6. Marketing, advertising and branding
7. Population structure / demographics
8. Time of year
9. Weather and climate
10. External shocks

Question 5

Definition of supply

Answer 5

Supply is measured in terms of the quantity of a good or service that a producer is willing and able to make available on the market, at a given price, over a given period of time

Question 6

Non price factors that effect supply

Answer 6

Cost of production - may decrease supply

2. Introduction of new technology - more goods can be supplied
3. Indirect taxes (e.g. VAT) - supply may decrease
4. Government subsidies
5. External shocks

Question 7

When demand exceeds supply what could happen

Answer 7

Shortages

Question 8

What is income elasticity of demand?

Answer 8

As consumer incomes change (up or down) so do demands. So a business can measure how much demand for a product or service will be affected by a change in consumers income.

Question 9

What are normal goods?

Answer 9

Normal goods are those for which a consumer demand increases when income increases. YED would be a value greater than 0 but below 1 (e.g 0.4).

Question 10

What are inferior goods?

Answer 10

Inferior goods are products where demand decreases as income increases. YED value for an inferior good will be a negative value (e.g -1.5).

Question 11

What is a luxury good?

Answer 11

A luxury good is when an increase in income causes a larger increase in demand. YED value for luxury goods will be above 1 (e.g 2.5).

Question 12

What is the formula for YED

Answer 12

% change in quantity demanded/ % change in income. X100

Question 13

Why is YED used within businesses?

Answer 13

YED is used by businesses to help them decide what products and services they should offer in order to increase sales.

Question 14

What is PED?

Answer 14

PED measures the responsiveness of demand to a change in price. PED values are always a minus and they can be either elastic or in elastic.

Question 15

What is an elastic products PED

Answer 15

More than 1

Question 16

What is an inelastic products PED

Answer 16

When the result is between 0 and -1

Question 17

Factors influencing price elasticity of demand

Answer 17

Availability of substitutes

Frequency of purchase

Necessities

Luxury goods

Question 18

What does PED cause a business to do in terms of their pricing strategies

Answer 18

Competitive pricing - used by business that sell very close substitutes, customer will have to judge aroduct on non price methods

Price skimming - starting high with price for new products, a business can maximise revenue before substitute can appear

Question 19

What are factors influencing YED

Answer 19

Luxury goods

Normal goods

Inferior goods

Question 20

Why does income change

Answer 20

If employees lose their job income will fall

Income will fall in times of a recession - business may need to cut costs (staff wages)

Income will rise if an employee gets promoted

Income will rise in times of economic growth - business may offer a pay rise

Question 21

Why is YED used by businesses

Answer 21

To help them to decide what product or services to offer in order to increase sales
E.g if incomes rise they may want to offer more premium products