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Summary Market analysis
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Summary notes for market analysis.
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Market analysisMarket analysis is the process of collecting information about the market the business is
operating in, in order to create effective objectives to ensure success.
Price elasticity of demand (PED) – measures the responsiveness of quantity demanded to a
change in price.
PED coefficient is always negative.
PED=0 Demand is perfectly inelastic.
PED=1 Demand is unit elastic.
PED<1 Demand is price inelastic.
PED>1 Demand is price elastic.
However, it depends on:
The number of close substitutes
The cost of switching between products
Whether the product is luxury/essential to the customer
Advantages:
PED helps a firm to decide whether to raise or lower their prices.
Disadvantages:
PED alone doesn’t tell the producer where the best, selling price is so that revenue
can be maximised.
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