PED

Question 1

PED -

Answer 1

• the correlation between price and the quantity demanded; examines the effect of price change on the quantity demanded

Question 2

Income elasticity of demand -

Answer 2

• measures the sensitivity or responsiveness of the quantity demanded of a product to a change in its price

Question 3

PED =

Answer 3

= % change in quantity demanded/% change in price

Question 4

Values of PED (2)

Answer 4

1. 1> price inelastic (small change in quantity demanded)
2. 1< price elastic (bigger change in quantity demanded with a change in price)

Question 5

Influences on PED (6)

Answer 5

1. Number of substitutions
2. Branding
3. Patent/trademark
4. Time period
5. Price
6. Who is paying (flights purchased by company vs flight purchased by an individual)

Question 6

Patent -

Answer 6

• protects new inventions and covers ho things work, what they do, how they do it, what they are made of and how they are made

Question 7

Trademark -

Answer 7

• is a sign which can distinguish the goods and services of a business from those of its competitors (the business might refer to it’s trademark as their ‘brand’)

Question 8

Analysing price decisions (2)

Answer 8

1. PED
2. Costs: cost plus strategy refers to adding a percentage on top of the costs involved in production; managers need to ensure that price more than covers average unit costs
   -> sometimes this approach might not work as the cost per unit might vary depending to how much is being produced and so managers might estimate expected sales at different prices and compare this with the expected costs

Question 9

Factors influencing pricing decisions (6)

Answer 9

1. Stage of product’s life cycle
2. Costs
3. PED
4. Positioning
5. Other elements of the marketing mix
6. Competitiveness of the environment

Question 10

Dynamic pricing -

Answer 10

• based on real-time changes in supply and demand. It considers market price fluctuations and monitors competitor activity. You get the right data and information to set optimal product prices and stay profitable despite fluctuations.

Question 11

Price penetration -

Answer 11

• when a business charges a low price to gain market share. Most suitable for price elastic goods as a low price can gain high sales and enable the business to benefit from producing on a large scale.

Question 12

Price skimming -

Answer 12

• when a business charges a relatively high price when the product is launched; most appropriate for price inelastic goods (f.e. when a product is heavily branded).