Theme 1 Key Formula

Market Share:

Sales of a business/ Total sales in the market   x 100%

- This indicates a market leader.

- Influence other companies to follow the leader.

- Influence the leader to maintain position.

- Business with a small market share may set a target of increasing its hare by 5 per cent over a period of time.

- Indication of the sucess or failure of a business or its strategy.

Total Revenue or Total Expenditure:

Total Revenue = Price x Quantity 

Price Elasticity of Demand= % change in quantity demanded/ % change in price

• Price elasticty is less than 1 demand is said to be price inelastic.
• Note that the minus sign is not used to determine whether goods are price elastic or price inelastic.
• It is enough to focus on the numerical value.
• Influencing factors: Time, Competition for the same product, Branding, The proportion of income spent on a product, Product types vs product of an individual business.

Calculation of Income Elasticity of demand:

Income elastcity of demand = % change in quantity of demanded / % change in income

• If the value of income elasticity is greater than 1, demand is said to be income elastic.
• If the value of income elasticity of demand is less than 1, demand is said to become inelastic.
• Can show if goods are inferior or normal goods.
• Normal goods, an increase in income results in an increase in demand, the value of income elasticity will be postive(+). 
• Inferior goods, increase in income elasticity will be negative (-)
• Influencing factors: necassities, luxaries
• Significance of income elasticity of demand for a business: Business selling goods with high income elasticity, business selling goods with low income elasticity, production planning, Product switching.

Price = unit cost + (mark-up x unit cost)