1. Does rising or lowering the price always work?
Unit 5.1.2
Does rising or lowering the price always work?

5. Key Terms
Price- The amount of money required to purchase a good or service
Revenue- the value of sales in a time period, calculated by Price X Quantity Sold.
Demand- the quantity of a good or service a consumer would like to buy at a given prices in a time period.

6. Changing Prices
What happens if the price of festival tickets reduce from £175- £150?
Would this benefit the business?
What would happen if the price of the tickets increased from £175- £190?
How would this benefit the business.

7. The demand rule
The rule of demand states the lower the price the higher the demand.
Demand can become price insensitive, this means changing the price by a certain amount can lead to a smaller change in demand.
Price sensitivity is the opposite of price insensitivity. This is where changing the price by a certain amount causes a big reaction by buyers and a larger chance in demand.

8. This shows the lower the price of coca cola the higher the demand.

10. Quick Quiz
The demand for Glastonbury tickets is price insensitive. This means when the price is increased;
Profit increases
Revenue decreases
Profit decreases
Revenue increases
Which one of the following would be most likely to make the demand for a good or service price sensitive.?
If the number of substitutes was limited
High levels of profit
The availability of large numbers of substitutes
If the demand for the product was very strong.
A firm has discovered through its market research that demand for the product it sells is price sensitive. In order to increase revenue its firm should;
Decrease costs
Increase prices
Increase costs
Decrease prices

11. Revision Essentials
Price Sensitivity – How much the demand changes according to a change in the price. Price sensitivity depends on numerous factors, most notably the number, price and availability of substitutes.
Substitute – A rival product that a consumer can switch to if the price of a product changes.