Price, income and cross elasticities of demand: practice

Question 11 mark

The price of a magazine rises by 8% and the quantity demanded falls by 12%. What is the price elasticity of demand?

Question 21 mark

Demand for a product has a PED of $-0.3$ . The firm raises its price. Total revenue will

Question 31 mark

Incomes rise by 3% and demand for foreign holidays rises by 6%. The YED and type of good are

Question 41 mark

The price of printers falls by 10% and demand for ink cartridges rises by 5%. The cross elasticity of demand for ink with respect to printer prices is

Question 51 mark

Which factor makes demand for a good more price elastic?

Question 61 mark

Why is demand for petrol more price elastic in the long run than in the short run?

Question 71 mark

Along a straight-line demand curve, where is total revenue greatest?

Question 81 mark

A café cuts the price of sandwiches by 10% and sells 30% more. By roughly how much does its sandwich revenue change?

Question 91 mark

Own-brand supermarket beans have a YED of $-0.4$ . What does this mean?

Question 101 mark

A train company knows demand for peak tickets is price inelastic and demand for off-peak tickets is price elastic. To raise total revenue it should

Data response 142 marks

Rail fares and revenue

Northline, a train operator in a region of England, is reviewing its fares.

Extract A: Estimated elasticities

Northline's estimates
Ticket type	Price elasticity of demand
Peak (commuting)	−0.4
Off-peak (leisure)	−1.8

Extract B: The plan

Northline plans to raise peak fares by 10% and cut off-peak fares by 10%. Commuters have few alternatives: roads into the city are congested and parking is expensive. Leisure travellers can drive, take a coach or stay at home.

(a) Calculate2 marks

Using Extract A, calculate the expected percentage change in the number of peak journeys after a 10% rise in peak fares.

(b) Explain5 marks

Explain why demand for peak rail travel is likely to be price inelastic.

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(c) Examine8 marks

Examine the likely effect of Northline's plan on its total revenue.

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(d) Discuss12 marks

Discuss whether raising peak fares is in the interest of commuters and the wider economy.

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(e) Evaluate15 marks

Evaluate the usefulness of price elasticity of demand estimates to a firm such as Northline when setting prices.

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