AQA A-level Economics: Demand, shifts in demand and elasticities of demand (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover the demand curve, shifts in demand and the three elasticities of demand for AQA A-level Economics (7136), specification version 1.3, sections 4.1.3.1 and 4.1.3.2 (numbered 3.1.3.1 and 3.1.3.2 on the AQA website). Every context and figure is invented and illustrative. Read the study guide and revision notes first. Course pages: AQA A-level Economics hub, checklist and free diagnostics. Show percentage workings and give the sign of each elasticity.

Questions

1. Define “demand”. [2]

2. In Country A, monthly scooter rentals at different prices are shown below.

Price (£)	2	3	4	5
Rentals	900	750	600	450

Bus fares then rise, and rentals at £4 become 750.

(a) State whether this is a movement along the demand curve or a shift. [1] (b) Explain why it happened. [2] (c) Assuming a parallel shift, state rentals at £3 after the change. [1]

3. A shop raises the price of a gadget from £15.00 to £16.50. Weekly sales fall from 800 to 728.

(a) Calculate price elasticity of demand. [2] (b) Work out how total revenue changes and what this shows. [2]

4. Incomes in Country B rise by 5%. Demand for frozen ready meals rises 2%, demand for budget noodles falls 3%, and demand for holiday packages rises 9%.

(a) Calculate income elasticity of demand for each good. [3] (b) Identify the inferior good and the income-elastic good, giving a reason for each. [2]

5. A supermarket raises the price of Brand P cereal from £3.20 to £3.52. Weekly sales of Brand Q rise from 1,500 to 1,800 packs.

(a) Calculate cross elasticity of demand. [2] (b) Explain what the value shows about the two brands. [2] (c) When the price of tennis rackets rises 5%, demand for tennis balls falls 2%. Calculate the cross elasticity and state the relationship. [2]

6. The only bus route in a small town raises its fares. Explain two factors that affect the price elasticity of demand for the service. [4]

7. A firm sells 5,000 units a month at £4. Its estimated PED is −0.6, and variable cost is £2.50 per unit. It plans a 10% price rise.

(a) Predict the percentage and absolute change in quantity. [2] (b) Calculate the new total revenue and its percentage change. [2] (c) Compare contribution (revenue minus variable cost) before and after. [2]

8. Incomes rise by 8%. Demand for a loose-leaf tea is 2,400 units, and its income elasticity is −1.25. Calculate the change in demand, give the new level, and state what the sign shows. [4]

9. A café estimates PED for its lattes at −1.5. Evaluate the view that it should cut the price to raise its revenue. [8]

10. Demand for a product is Qd = 1,000 − 100P.

(a) Calculate quantity and total revenue at £3, £5 and £7. [3] (b) Calculate PED for a rise from £3 to £4. [2] (c) Calculate PED for a rise from £7 to £8 and explain what the two results show. [2]

11. A coach firm carries 50,000 passengers a month. Rail fares rise 10% (cross elasticity of coach demand with respect to rail price: +0.8). Incomes fall 3% (income elasticity of coach demand: −0.6).

(a) Calculate the effect of the rail fare rise and name the relationship. [2] (b) Calculate the effect of the income fall and name the type of good. [2] (c) Estimate passengers if the two effects simply add. [2]

Answers

1. The amount of a good consumers wish to buy and can afford [1], at each price over a stated period with other influences constant [1]. [2] Examiner insight: A definition with only “willing” to buy is incomplete; “able” (purchasing power) is the part often left out.

2. (a) A shift (rightward), because price did not change [1]. [1] (b) Bus travel is a substitute for scooters [1]; dearer bus fares raise demand for scooters at every price [1]. [2] (c) 750 + 150 = 900 [1]. [1] Examiner insight: State the cause and the direction of the shift. Naming “a substitute” without saying its price rose does not explain a rightward move.

3. (a) %ΔP = 1.50 ÷ 15 = +10% [1]; %ΔQ = −72 ÷ 800 = −9%, so PED = −0.9 [1]. [2] (b) Revenue before 15 × 800 = £12,000; after 16.50 × 728 = £12,012, a rise of £12 [1]. Demand is inelastic, so the price effect slightly outweighs the quantity effect [1]. [2] Examiner insight: A PED near −1 means revenue barely changes; calculate it rather than assuming a large change.

4. (a) Frozen meals 2 ÷ 5 = +0.4 [1]; noodles −3 ÷ 5 = −0.6 [1]; holidays 9 ÷ 5 = +1.8 [1]. [3] (b) Noodles are inferior because YED is negative [1]. Holidays are income elastic because YED exceeds 1, so demand grows faster than income [1]. [2] Examiner insight: Link the sign or size of the figure to the classification; a label with no reasoning rarely earns the mark.

5. (a) %ΔP = 0.32 ÷ 3.20 = +10% [1]; %ΔQ = 300 ÷ 1,500 = +20%, so XED = +2.0 [1]. [2] (b) The positive sign shows substitutes [1]; the value of 2.0 shows they are close, as a 10% rise in P’s price lifts Q’s sales by 20% [1]. [2] (c) XED = −2 ÷ 5 = −0.4 [1]; negative, so complements, with a weak link [1]. [2] Examiner insight: Put the quantity of the good being studied in the numerator and the other good’s price in the denominator; reversing them gives a different value.

6. First factor, for example few or no close substitutes [1]: passengers with no alternative route keep travelling, so demand is inelastic [1]. Second factor, for example the proportion of income spent or the time period [1]: over the long run people find other ways to travel or move closer to work, so demand becomes more elastic [1]. [4] Examiner insight: Each factor needs an explained link to responsiveness in this context, not just a named list.

7. (a) −0.6 × 10 = −6% [1]; 5,000 × 0.06 = 300, so 4,700 units [1]. [2] (b) Before 5,000 × £4 = £20,000 [1]; after 4,700 × £4.40 = £20,680, a rise of 3.4% [1]. [2] (c) Before: (4.00 − 2.50) × 5,000 = £7,500 [1]. After: (4.40 − 2.50) × 4,700 = £8,930, so contribution rises by £1,430 [1]. [2] Examiner insight: Show the unit figures separately; a correct comparison needs both before and after values for revenue and for cost.

8. %Δ demand = −1.25 × 8 = −10% [1]; fall = 2,400 × 0.10 = 240 [1]; new demand 2,160 [1]. The negative sign shows an inferior good, as demand falls when income rises [1]. [4] Examiner insight: Multiply the elasticity by the percentage change in income, then apply it to the original quantity.

9. Demand is elastic, so a price cut raises quantity by a larger percentage than it cuts price, and revenue rises [1]. Illustration: a 10% cut gives a 15% rise in quantity, so revenue is 0.9 × 1.15 = 1.035 of the old figure, up 3.5% [2]. However, revenue is not profit: extra lattes bring extra ingredient and labour costs, so profit may fall [1]. The −1.5 figure is only an estimate and PED changes along the curve, so a larger cut may not repeat the result [1]. Rival cafés may match the cut, cancelling the gain in sales [1]. In the long run, customers may become used to lower prices, and a lower price may signal lower quality [1]. Judgement: the cut is likely to raise revenue but only worth doing if the margin on extra sales covers costs [1]. [8] Examiner insight: A strong answer applies the number to the café, gives a calculated illustration, and then tests it with costs, rivals and time before reaching a judgement.

10. (a) £3: Q = 700, revenue £2,100 [1]; £5: Q = 500, revenue £2,500 [1]; £7: Q = 300, revenue £2,100 [1]. [3] (b) %ΔP = +33.3% [1]; %ΔQ = −100 ÷ 700 = −14.3%, so PED = −0.43 [1]. [2] (c) %ΔP = +14.3%, %ΔQ = −100 ÷ 300 = −33.3%, so PED = −2.33 [1]. Elasticity differs along a straight demand curve, being inelastic at low prices and elastic at high prices, though the slope is constant [1]. [2] Examiner insight: Both results are needed to make the point; one value on its own cannot show how elasticity varies.

11. (a) +0.8 × 10 = +8% [1]; positive cross elasticity shows rail and coach are substitutes [1]. [2] (b) −0.6 × −3 = +1.8% [1]; negative income elasticity shows an inferior good [1]. [2] (c) 8% + 1.8% = 9.8% [1]; 50,000 × 1.098 = 54,900 passengers [1]. [2] Examiner insight: Keep track of signs when both the elasticity and the change are negative; the product is positive.

Where marks are usually lost

• Using the end value as the base rather than the starting value.
• Using absolute changes instead of percentage changes.
• Giving an elasticity with no sign, no label or no meaning.
• Treating “inferior” as meaning poor quality.
• Drawing a shift when only the good’s own price changed.
• Swapping the good in the numerator and denominator of cross elasticity.
• Saying revenue rises after a price rise without checking whether demand is inelastic.
• Treating revenue as profit in evaluation answers.
• Listing factors affecting elasticity without applying them to the context.

Next steps

• Re-read the revision notes and the study guide.
• Visit the AQA A-level Economics hub and tick off topics on the checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Source: the A-level Economics specification published by AQA (version 1.3, 29 June 2022), content sections 4.1.3.1 and 4.1.3.2.