Price elasticity of demand: practice

Question 11 mark

A theatre raises ticket prices by 12% and sales fall by 6%. What is the price elasticity of demand?

Question 21 mark

A car wash raises its price from £5 to £5.50 and weekly washes fall from 2,000 to 1,800. What is the PED?

Question 31 mark

A product has a PED of −2.5. The firm raises its price. What happens to total revenue?

Question 41 mark

Which product is most likely to have price inelastic demand?

Question 51 mark

A bakery sells 10,000 pies a month at £4. It raises the price to £4.40 and sells 9,300. What happens to monthly revenue?

Question 61 mark

Why does demand usually become more price elastic over time?

Question 71 mark

A bus company's PED is −0.4. It plans a 15% fare rise. By how much should passenger numbers change?

Question 81 mark

A firm's demand is price elastic. Which pricing move is most likely to raise its revenue?

Question 91 mark

Which best explains why a strong brand makes demand less price elastic?

Question 101 mark

A PED is calculated as −0.8. A student says 'demand is elastic because the number is negative'. What is wrong?

Case study 150 marks

Northfield Leisure

Northfield Leisure runs the only swimming pool and gym in a market town. Its nearest rival is 15 miles away. Membership costs £40 a month. Its costs have risen, and the managers are considering a price rise.

Extract A: A trial price rise

Last year, Northfield raised monthly membership at one of its two sites from £40 to £46 for three months. Members at that site fell from 3,000 to 2,850.

Extract B: Members and rivals

Most members live in the town and use the pool at least twice a week. A low-cost gym chain is looking at a site in the town centre, charging £20 a month but with no pool. Northfield's members say its swimming lessons for children are the main reason they join.

(a) Calculate4 marks

Using Extract A, calculate the price elasticity of demand for membership. Give your answer to two decimal places.

(b) Explain4 marks

Explain one reason why demand for Northfield's membership is price inelastic.

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(c) Assess10 marks

Assess the likely effect on Northfield's revenue of raising membership to £46 at both sites.

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(d) Assess12 marks

Assess the factors that might make demand for Northfield's membership more price elastic in future.

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(e) Evaluate20 marks

Northfield could raise prices to £46 or keep prices at £40 and add a family membership. Evaluate these two options and recommend which Northfield should choose to increase its profit.

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