CIE AS Topical Past Paper 2
2.2 Price elasticity, income elasticity and cross elasticity of demand
9708/23/M/J/24
b) Assess whether cross elasticity of demand is likely to be more important in determining the demand for electric cars than income elasticity of demand. [12]
9708/21/M/J/24
a) With the help of a formula, explain what is meant by the income elasticity of demand for a product and consider the extent to which demand for the product will always rise at the same rate as the income of its consumers. [8]
b) Assess the extent to which price elasticity of supply or cross elasticity of demand is most useful to businesses. [12] [Sample answer]
9708/22/F/M/24
a) With the help of a formula, explain the meaning of income elasticity of demand and consider the extent to which a rise in income will increase the consumption of all goods and services. [8]
b) Assess whether an estimate of the price elasticity of demand for a product is likely to be more useful to a firm than an estimate of its price elasticity of supply. [12]
9708/23/O/N/23
b) Assess whether knowledge and understanding of price elasticity of demand (PED) or cross elasticity of demand (XED) is likely to be more useful to a producer of smartphones. [12]
9708/21/O/N/23
b) Assess whether price elasticity of demand (PED) or income elasticity of demand (YED) is likely to be of greater importance to a firm producing cars. [12]
9708/21/O/N/22
a) Explain two factors that will determine the price elasticity of demand for a particular brand of car and how this price elasticity of demand may change over time. [8]
b) Discuss whether knowledge of price elasticity of demand or income elasticity of demand would be of greater use to a business that produces cars. [12]
9708/22/M/J/22
a) With the help of diagrams, use the concept of income elasticity of demand to explain the impact of a fall in incomes on the equilibrium price and equilibrium quantity of a normal good and an inferior good. [8]
b) Discuss the difficulties that businesses might have when they try to control the factors that determine the price elasticity of demand for a product and consider whether attempts to control these factors are likely to be successful. [12]
9708/23/O/N/21
a) Using the concept of price elasticity of demand, explain why increasing the price of the product is:
(i) a bad idea for a firm producing a product that constitutes a large proportion of household income, and
(ii) a good idea for a firm producing a product that constitutes a small proportion of household income. [8]
b) Discuss whether cross elasticity of demand or income elasticity of demand is likely to be more useful in assisting a firm in its pricing decisions. [12]
9708/23/M/J/21
Market research has estimated that the cross-elasticity of demand for hotels in Barbados with respect to the price of flights to Barbados is –2.5, and that the cross-elasticity of demand for flights to Antigua with respect to the price of flights to Barbados is +0.5.
a) Explain what is meant by cross-elasticity of demand and what these values mean in terms of the effect of changes in the price of flights to Barbados on
(i) the demand for hotels in Barbados, and
(ii) the demand for flights to Antigua. [8]
9708/22/M/J/21
a) Explain how the concept of cross-elasticity of demand can be used to distinguish between goods that are substitutes, those that are complements and those that have no relationship. [8]
An economy is experiencing a fall in average incomes during a severe recession.
b) Discuss the extent to which the concepts of income elasticity of demand and price elasticity of demand might be useful to an entrepreneur in this economy and consider which would be more useful. [12]
9708/21/M/J/21
b) Discuss the extent to which knowledge of the income elasticity of demand for its product is likely to be more useful to a business than knowledge of the cross elasticity of demand for its product. [12]
9708/23/O/N/20
a) Explain what is meant by income elasticity of demand and, with the help of examples, show how it can be used to determine whether a good is normal or inferior. [8]
9708/21/O/N/20
a) Cross elasticity of demand for bread with respect to the price of rice is +1.4 while the cross elasticity of demand for bread with respect to the price of butter is –0.7. Explain why the cross elasticity of demand figures for bread differ. [8]
b) Explain the implications of price elasticity of demand and income elasticity of demand for business decisions. Discuss which measure is likely to be more useful to a business. [12]
9708/23/M/J/20
b) Discuss whether, for a manufacturer of smartphones, knowledge of their product’s price elasticity of demand or its cross elasticity of demand with respect to other products is more useful. [12] Explain the implications of price elasticity of demand and income elasticity of demand for business decisions. Discuss which measure is likely to be more useful to a business. [12]