Answer to Question 1
a. Obsolescence and leapfrogging of products: Consumers in emerging economies do not necessarily follow the same patterns as those in higher-income countries. In many emerging economies, consumers have leapfrogged the use of traditional telephones by jumping from having no telephones to using cellular phones exclusively.
b. Prices: If prices of essential products are high, consumers may spend more than what one would expect based on per capita GDP. The expenditures on food in Japan are higher than would be predicted by either population or income level because food is expensive and work habits promote eating out. However, if costs are high for a non-necessity, expenditures will likely be lower.
c. Income elasticity: A common tool to predict total market potential is to divide the percentage of change in product demand by the percentage of change in income in a given country. The more that demand increases, the more elastic is the demand in response to income change. Income elasticity varies by product and by income level.
d. Substitution: Consumers in a given country may have products or services that substitute more conveniently in some countries than in others for the products that companies would like to sell. For example, there are fewer automobiles in Hong Kong than one would expect based on income and population because the crowded conditions make the efficient mass transit system a desirable alternative to automobiles.
e. Income inequality: Where income inequality is high, the per capita GDP figures are less meaningful, as most people have very little to spend and some people have substantial income to spend.
f. Cultural factors and taste: Countries with similar per capita GDPs may have different preferences for products and services because of values or tastes.
g. Existence of trading blocs: Although a country may have a small population and GDP, its presence in a regional trading bloc gives its output access to a much larger market.
Answer to Question 2
A
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