Key term
Edexcel A-Level Economics B 9EB0
Scarcity, Choice and Potential Conflicts
Enterprise, Business and the Economy
Introducing the Market
Topic overviewConsumer objectives and the demand curveMovements along and shifts of the demand curveProducer objectives and the supply curveMovements along and shifts of the supply curveEquilibrium price and quantityExcess demand, excess supply and market forcesShifts in demand and supply in real marketsLimitations of the supply and demand modelFunctions of the price mechanismMass markets, niche markets and market growthMarket research and consumer insightMarket segmentationMarket mapping and competitive advantageAdding value, pricing decisions and dynamic markets
The Role of Credit in the Economy
Topic overviewBanks and the channelling of savings into investmentBank lending, interest rates and collateralRisk in business decision-makingLimited and unlimited liabilityLoans, overdrafts and trade creditVenture capital, share capital and leasingOwner's capital, retained profit and other sources of financeChallenges in obtaining credit and the impact of credit on the economy
Market Failure and Government Intervention
Revenue, Costs, Profits and Cash
Topic overviewSales volume and sales revenueFixed, variable, total and average costsPercentage change in revenue, costs and profitContribution and the break-even pointMargin of safety and the limitations of break-even analysisProfit as an incentive: market entry and exitGross, operating and net profitProfit margins and how firms increase profitCash flow, cash-flow forecasting and business survival
Business Growth and Competitive Advantage
Topic overviewObjectives of business growthInternal and external economies of scaleDiseconomies of scale and the problems of growthCorporate culture in a growing businessOrganic and inorganic growthHorizontal, vertical and conglomerate integrationInnovation, research and development and competitive advantageState funding for research and developmentThe product life cycle and extension strategiesMarket information in the digital economyDigital technology and the supply side of businessThe long tail and wider geographical marketsCosts, prices and firm survival in a digital marketHow small firms compete
Firms, Consumers and Elasticities of Demand
Topic overviewCalculating and interpreting price elasticity of demandFactors influencing price elasticity of demandPrice elasticity of demand and total revenuePrice elasticity of demand in niche and mass marketsPricing strategiesChoosing the right pricing strategyOnline sales, price comparison and pricing decisionsNon-price competition and the demand curveDevising a marketing approachIncome elasticity of demand
Productive Efficiency
Life in a Global Economy
Topic overviewCharacteristics of globalisationCauses of globalisation over the last fifty yearsGrowth in the UK and the BRIC economiesIndicators of growth and developmentDeveloped, emerging and developing economiesMean and median incomesSpecialisation and the gains from international tradeTrading blocsVisible and invisible trade and the impact of cheap importsExchange rate changes and their impact on firmsReading exchange rate and effective exchange rate data
The Economic Cycle
Topic overviewThe economic cycle: boom, slowdown, recession and recoveryImplications of the economic cycle for firmsThe circular flow of income, injections and withdrawalsAggregate demand and its componentsAggregate supply, input costs and productivityInflation, deflation and disinflationPrice indices and the rate of inflationReal and nominal values, constant and current pricesDemand-pull and cost-push inflationThe impact of inflation on firms and individualsEmployment, underemployment and the measurement of unemploymentThe causes of unemploymentThe impact of unemployment on firms and individuals
Introduction to Macroeconomic Policy
Globalisation
Topic overviewThe growing economic power of China and IndiaAfrica and other emerging marketsRising incomes, firms and shifting employment patternsNominal and real valuesIndex numbersTrade liberalisation and economic growthSpecialisation and comparative advantageForeign direct investment and growthTrade creation and trade diversionTrading blocs and the single marketTrading blocs, firms and growing interdependenceProtectionism: tariffs, quotas and other trade barriersTrade negotiations and international institutionsExchange rate changes and the Eurozone
Economic Factors in Business Expansion
Topic overviewPush factors: saturated markets and competitionPull factors: economies of scale and risk spreadingOffshoring and outsourcingExtending the product life cycle through overseas marketsRaising capacity utilisationAssessing a market: disposable income and exchange ratesEase of doing business, infrastructure and political stabilityLocation of production: costs, labour and natural resourcesLocation of production: trade blocs, incentives and return on investment
Impact of Globalisation on Global Companies
Topic overviewGlobalisation and glocalisationEthnocentric, polycentric and geocentric approaches to global marketsPrice and non-price competition in global marketsBranding and differentiation in global marketsCultural and language barriers in global marketsAdapting marketing strategy for niche and mass markets
Impact of Globalisation on Local and National Economies
Topic overviewMultinational corporations and local labour marketsMultinational corporations and local firmsMultinationals, the local community and the environmentForeign direct investment, growth and the balance of paymentsTechnology transfer, skills and business cultureMultinationals and consumersTax revenues and transfer pricingStakeholder conflicts, pay and working conditionsEmissions, waste disposal and supply chain ethicsEthical marketing: labelling and promotionControlling multinational corporations
Global Labour Markets
Inequality and Re-Distribution
Topic overviewAbsolute and relative poverty and how they are measuredMeasuring inequality: the Lorenz curve and the Gini coefficientReducing poverty: growth, development and international aidThe impact of inequality on individuals, firms and the economyRe-distribution of income and wealth through taxation and services
Competition and Market Power
Topic overviewMarket structures across the spectrum of competitionPerfect competition and what the model explainsMarket structure, pricing strategies and consumersNon-price competition and the limitations of perfect competitionContestability, ease of entry and barriers to entryBarriers to entry, market structure and economies of scaleConcentration ratios, interdependence and tacit agreementPrice discriminationAverage and marginal cost, revenue and profitContribution, business objectives and pricing strategiesProductive and allocative efficiencyProductivity, market orientation and interrelated markets
Market Power and Market Failure
Topic overviewCartels, collusion and restrictive practicesMonopsony, natural monopoly and power in the labour marketThe implications of market failure for firms, consumers and governmentPromoting competition: anti-competitive practices, mergers and privatisationRegulating natural monopolies and protecting consumers and employeesThe Competition and Markets Authority and EU competition policyThe benefits and costs of regulation
Market Failure Across the Economy
Macroeconomic Policies and Impact on Firms and Individuals
Topic overviewAggregate demand and its componentsAggregate supply, full capacity output and the output gapThe multiplier effectShifts in AD and AS: inflation, unemployment and growthFiscal policy: government spending and taxationMonetary policy: the Bank of England, interest rates and quantitative easingDemand-side policies on the AD/AS diagram: investment, jobs and pricesTime lags, policy conflicts and the limits of demand-side policyMarket-based supply-side policiesInterventionist supply-side policiesSupply-side policies on the AD/AS diagram: strengths and weaknessesComparing macroeconomic policies and judging their success
Risk and the Financial Sector
Topic overviewRisk and uncertainty in business decisionsEconomic shocks and their impact on firmsExchange rate risk and forward marketsInsurance and the management of business riskMobilising savings and lending for business investmentAssessing creditor risk and lending to individualsPayments, equity markets and the exchange of goods and servicesThe central bank: the MPC, monetary policy and financial regulationThe Global Financial Crisis and banking regulation
Firms, Consumers and Elasticities of Demand
- 10 subtopics
- 30 things to know
- Papers 2 and 3
What Firms, Consumers and Elasticities of Demand covers
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.
Where it is assessed
Papers 2 and 3
Competing in the global economy, then the synoptic paper on the pre-released context.
Check the Pearson Edexcel specification ↗The 10 subtopics
Each one has its own page.
- Calculating and interpreting price elasticity of demandThe 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.Open →
- Factors influencing price elasticity of demandRecall 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.Open →
- Price elasticity of demand and total revenueRecall 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.Open →
- Price elasticity of demand in niche and mass marketsNiche 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.Open →
- Pricing strategiesCost-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.Open →
- Choosing the right pricing strategyRecall 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.Open →
- Online sales, price comparison and pricing decisionsOnline 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.Open →
- Non-price competition and the demand curveNon-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.Open →
- Devising a marketing approachThe 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.Open →
- Income elasticity of demandThe 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.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Key term
Distinguish between a mark-up on cost and a profit margin on price.
Key term
What is the formula for price elasticity of demand?
Key term
What is the single most important factor determining the price elasticity of demand for a good?
Key term
Distinguish between a niche market and a mass market.
Key term
How does the number of unique selling points a product has affect the price a firm can charge?
Key term
How has the growth of online selling affected firms' freedom to set prices?
Key term
Define non-price competition.
Key term
What are the four elements of the marketing mix?
Key term
What is the formula for income elasticity of demand?
Key term
Why is the price elasticity of demand negative for almost every good?
Key term
Why does a good with many close substitutes have elastic demand?
Key term
What is the formula for total revenue?
Key term
Why is demand in a niche market usually less price elastic than in a mass market?
Key term
Define cost-plus pricing.
Key term
How does price elasticity of demand influence the choice of pricing strategy?
Key term
What is dynamic pricing?
Key term
Why do firms in an oligopoly rely more on non-price competition than on price competition?
Key term
Why must the elements of the marketing mix be consistent with one another?
Key term
Define a normal good in terms of income elasticity of demand.
Numbers
A firm raises its price from £2.00 to £2.20 and weekly sales fall from 500 to 450 units. Calculate the price elasticity of demand.
Key term
How does the passage of time affect the price elasticity of demand for a good?
Key term
What happens to total revenue when a firm facing inelastic demand raises its price?
Key term
Why might a firm deliberately move out of a mass market and into a niche?
Numbers
A product has a unit cost of £40 and the firm applies a mark-up of 25%. Calculate the selling price.
Key term
How does a strong brand widen a firm's pricing options?
Key term
In which two markets is dynamic pricing most common?
Key term
Define product differentiation.
Key term
Define market segmentation as a step in devising a marketing approach
Key term
Define an inferior good in terms of income elasticity of demand.
Take Firms, Consumers and Elasticities of Demand further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Price elasticity of demand vs Income elasticity of demand
Price elasticity of demand: the percentage change in quantity bought divided by the percentage change in the amount charged for the good itself. Income elasticity of demand: the percentage change in quantity bought divided by the percentage change in what consumers earn in real terms.
Inelastic demand vs Perfectly inelastic demand
Inelastic demand: a response in which the quantity bought changes by proportionately less than the price that caused it. Perfectly inelastic demand: a response in which the quantity bought does not change at all when price changes, giving a value of 0 and a vertical curve.
Mark-up on cost vs Profit margin on price
Mark-up on cost: the surplus on a sale expressed as a percentage of what the unit took to produce, so £2 on an £8 unit is 25%. Profit margin on price: the surplus on a sale expressed as a percentage of what the customer pays, so £2 on a £10 sale is 20%.
Questions from this topic
Each one with the model answer underneath.
- 1
What is the formula for price elasticity of demand?
Model answer
Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.
- 2
Why is the price elasticity of demand negative for almost every good?
Model answer
Price and quantity demanded move in opposite directions, so one of the two percentage changes is positive while the other is negative.
- 3
A firm raises its price from £2.00 to £2.20 and weekly sales fall from 500 to 450 units. Calculate the price elasticity of demand.
Model answer
Price rises by 10% and quantity falls by 10%, so the price elasticity of demand is −1.0.
- 4
Quantity demanded falls by 4% when price rises by 8%. Calculate the price elasticity of demand and state what it shows.
Model answer
The price elasticity of demand is −0.5, which shows that demand is price inelastic.
- 5
A firm cuts its price by 5% and the quantity sold rises by 15%. Calculate the price elasticity of demand.
Model answer
The price elasticity of demand is −3.0.
- 6
What does a price elasticity of demand of −0.3 tell a firm about the response to a price rise?
Model answer
Demand is highly inelastic, because a 1% rise in price reduces quantity demanded by only 0.3%.
What is inside Levo
Six ways to work the same material.
Firms, Consumers and Elasticities of Demand revision questions
- What does Firms, Consumers and Elasticities of Demand cover in Edexcel A-Level Economics B?
- 10 subtopics: 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. Each one has its own page with questions and model answers.
- How is Firms, Consumers and Elasticities of Demand organised?
- By the Edexcel 9EB0 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Firms, Consumers and Elasticities of Demand, on a schedule.
Attempt a question from memory, write the correct version, then attempt it again. Levo records the jump between your first attempt and your last, and brings each question back on the day you are due to forget it.
Or £46 a year, about £3.83 a month. Cancel anytime.