Firms, Consumers and Elasticities of Demand | Edexcel A-Level Economics B (9EB0)
Firms, Consumers and Elasticities of Demand
- 139 questions
- 10 subtopics
- Theme 2: the wider economic environment
- Paper 2 and Paper 3
Firms, Consumers and Elasticities of Demand is examined in Paper 2, Competing in the global economy, and in Paper 3, The economic environment and business.
It covers calculating and interpreting price elasticity of demand, factors influencing price elasticity of demand, price elasticity of demand and total revenue, price elasticity of demand in niche and mass markets, pricing strategies, choosing the right pricing strategy, online sales, price comparison and pricing decisions, non-price competition and the demand curve, devising a marketing approach and income elasticity of demand.
Sample questions from Firms, Consumers and Elasticities of Demand
Answer each one closed book first, then open the answer.
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Calculating and interpreting price elasticity of demand
What does a price elasticity of demand of −0.3 tell a firm about the response to a price rise?
Show the answer
Demand is highly inelastic, because a 1% rise in price reduces quantity demanded by only 0.3%. -
Factors influencing price elasticity of demand
How does the passage of time affect the price elasticity of demand for a good?
Show the answer
Demand becomes more elastic over time as consumers find alternatives and change habits and equipment, so the long-run elasticity is larger than the short-run one. -
Price elasticity of demand and total revenue
A firm raises its price from £5 to £6 and monthly sales fall from 2,000 to 1,900 units. Calculate the change in total revenue.
Show the answer
Total revenue rises from £10,000 to £11,400, an increase of £1,400. -
Price elasticity of demand in niche and mass markets
Why does a mass-market firm depend more heavily on economies of scale than a niche firm?
Show the answer
Its margin per unit is thin, so profit comes from volume, and only low average costs make that volume profitable. -
Pricing strategies
Define price skimming.
Show the answer
Price skimming sets a high price when a product is launched and lowers it over time as the market widens. -
Choosing the right pricing strategy
Why does the stage of the product life cycle matter when a price is set?
Show the answer
A new product with no substitutes can be skimmed, whereas a mature product facing many rivals must be priced competitively. -
Online sales, price comparison and pricing decisions
Why do price comparison sites make demand facing an individual seller more elastic?
Show the answer
Consumers see every rival price side by side, so even a small premium sends them to another supplier. -
Non-price competition and the demand curve
Distinguish between real and perceived product differentiation.
Show the answer
Real differentiation involves genuine differences in the product's characteristics, while perceived differentiation is created by branding and advertising with no change to the product itself.
The 10 subtopics
One subtopic is one session. Work down the list.
| Subtopic | What it covers | Questions |
|---|---|---|
| Calculating and interpreting price elasticity of demand | The formula for price elasticity of demand and why it is negative, calculating it from price and quantity changes, interpreting values, perfectly inelastic demand and its curve, unit elasticity, elastic against inelastic demand, elasticity along a straight-line demand curve, the price cut needed for a sales target, and estimates from past data. | 15 |
| Factors influencing price elasticity of demand | Recall questions on what makes demand elastic or inelastic — substitutes, the share of income spent, necessity, time, habit and brand loyalty — and how defining the market changes the answer. | 13 |
| Price elasticity of demand and total revenue | Recall questions on total revenue and its formula, which way it moves when an elastic or inelastic seller changes price, and why maximum revenue is not maximum profit. | 14 |
| Price elasticity of demand in niche and mass markets | Niche against mass markets, why niche demand is less price elastic, pricing for inelastic niche demand and elastic mass-market demand, economies of scale, protection during price wars, moving into a niche, a large firm entering a niche, the disadvantages of a niche strategy, watching rivals' prices, and making demand less elastic. | 12 |
| Pricing strategies | Cost-plus pricing and calculating mark-ups, mark-up on cost against margin on price, price skimming, penetration pricing, predatory pricing and why it is illegal and hard to prove, competitive pricing, psychological pricing, high prices that raise demand for luxury goods, and loss leaders. | 17 |
| Choosing the right pricing strategy | Recall questions on what governs the choice of pricing strategy — differentiation, elasticity, competition, brand and the life cycle — and the price floors a firm cannot go below for long. | 14 |
| Online sales, price comparison and pricing decisions | Online selling and pricing freedom, dynamic pricing and where and why it is used, price comparison sites and elasticity, avoiding competition on price alone, cheaper price changes online, price matching, personalised pricing and consumer objections, squeezed high-street margins, and subscription pricing. | 12 |
| Non-price competition and the demand curve | Non-price competition and oligopoly, advertising and its two effects on the demand curve, real and perceived product differentiation, packaging, advertising as a fixed cost, distribution and restricted outlets, sales promotions, loyalty schemes, costs without profit, after-sales service, and celebrity endorsement. | 14 |
| Devising a marketing approach | The four elements of the marketing mix and their consistency, market segmentation and its bases, primary and secondary market research, target markets, niche against mass-market approaches, business against consumer marketing, judging a campaign's success, and changing the approach over the product life cycle. | 12 |
| Income elasticity of demand | The formula for income elasticity of demand, normal and inferior goods, calculating and classifying income elasticity, necessities and luxuries, goods that are normal for some households and inferior for others, bus travel, preparing for the economic cycle, premium and value ranges, choosing overseas markets, and re-estimating elasticity. | 16 |
How the guide is worked
Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.
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Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
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Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
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Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.
Read the full method, the return schedule and the research behind it.
Nearby topics
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