A-AS Level (CIE) Business Studies Paper-2: Specimen Questions with Answers 5 - 7 of 52

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Case Study- 3

Tobacco products are kind of goods with inelastic demand since there is almost no substitute goods for them. Therefore, it is hard to reduce the amount of people smoking once they have been addicted. Moreover, cigarettes also have a high-income elasticity of demand as people with high income will be willing to buy a lot more of packs of cigarettes, thus, they become more addicted.

One way to reduce youth smoking and people smoking in general is to raise the price through higher cigarettes taxes. The reduction amount of youth smoking depends on the price elasticity of demand. This elasticity is elastic for teenagers than for adults. It is because teenager income is relatively low, the portion spent on cigarettes usually bigger than that of adult smokers. In addition, peer pressure affects a young person՚s decision to smoke more than an adult՚s decision to continue smoking. The impact of a higher price also reduces smoking by peers and thus, drives down the number of young smokers. Moreover, young smokers not yet addicted to nicotine are more sensitive to price rises than adults, who are likely to be heavy smokers. The experience from other countries encourages the efficiency of higher cigarette taxes in reducing people smoking. For example, Thailand government has regularly raised the cigarettes taxes nine times within 15 years (1992 - 2007) and recently, the amount of tax collected is 2 - 3 times more than Vietnam and the number of smokers is two-thirds less than Vietnam.

Question 5 (5 of 5 Based on Passage)

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Short Answer▾

What is the price elasticity for tobacco? Explain it.

Explanation

Price elasticities of various addictive goods in India are ranged between -0.5 to -1.0 for leaf tobacco and alcohol having elasticities close to unity, cigarettes are least price elastic. Because smoking or any addictive habit is so hard to kick demand for cigarettes is highly inelastic. Only large price increase will have a shrink in the demand curve because the demand is inelastic to price.

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Case Study-1

Promotion is one of the most powerful elements in the marketing mix. It means to communicate and persuade the target market — by identifying the needs of the target segment — to buy the company՚s products. The promotion concept includes all marketing activities used to inform, persuade, and remind the target market about a firm and its products or services, in such a way as to build a favorable image in the mind of the customer (Sidhanta & Chakrabarty, 2010) . In the same context, Kotler, and Armstrong (2012) defined promotion as human activities based on a communication process that can be directed via personal selling points or indirectly via advertising messages through the media.

The main objective of the promotion process is to identify the firm and its products or services for the target market, and to increase the level of purchasing. The brand establishment and the brand name are based on the promotion process. The SME sector in Al Buraimi focuses on the promotion process to identify the products and services of the individual firm and to persuade their customers to buy their products or services repeatedly. However, the promotion process is affected by the decisions of SME marketing managers regarding the level of marketing expenditure or promotion. The promotion process comprises of a few components such as advertising, personal selling, sales promotion, and public relations. All these components blend to create the promotion mix aimed at achieving the organization՚s marketing objectives. Advertising is the most powerful element of the promotion mix, due to its involvement in developing the image of the product in the market, or positioning the product in the mind of the customer (Latif & Abideen, 2011) .

Question 6 (1 of 6 Based on Passage)

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Short Answer▾

“All organizations need marketing.” Do you agree with this statement? If so, give reasons for your answers.

Explanation

Marketing as a managerial activity involves analyzing the market opportunities, planning the market activities, implementing marketing plans, and setting control mechanisms in such a way that organizational objectives are accomplished at minimum cost. In other words, marketing is:

Organizational Objectives

Question 7 (2 of 6 Based on Passage)

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Short Answer▾

If the company produces a single article. Following cost data is given about its product:

Selling price per unit

Marginal cost per unit

Fixed cost per annum

Calculate:

(b) break even sales

Explanation

Break even sales (At break-even sales, contribution is equal to fixed cost) Putting this value:

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