AQA GCSE Economics: Price elasticity of demand and supply (8136) – 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 3.1.3.5 Price elasticity of demand and 3.1.3.6 Price elasticity of supply from the AQA GCSE Economics (8136) specification, first taught from September 2017. The specification has no tiers. Every firm, place and figure is invented. For explanations see the study guide and revision notes. Also see the AQA GCSE Economics hub, the checklist and the free diagnostics.

Questions

1. (a) Write down the formula for price elasticity of demand. [1] (b) A product rises in price from £5 to £6 and quantity demanded falls from 2,000 to 1,700. Work out the price elasticity of demand. [3]

2. A hotel (illustrative) cuts its room price from £80 to £72. Rooms booked each week rise from 150 to 195. (a) Work out the price elasticity of demand. [3] (b) Say whether demand is elastic or inelastic and give a reason. [1] (c) Calculate the hotel’s weekly revenue before and after the price cut. [2]

3. Explain two factors that make demand for petrol price inelastic. [4]

4. A tool shop (illustrative) sells 900 cordless drills a month. The price elasticity of demand is -1.6. The shop raises price by 5%. (a) Find the percentage change in sales. [2] (b) Find the new monthly sales. [2]

5. An orange grower (illustrative) sees the price of a crate rise from £12 to £15. Supply rises from 2,000 to 2,300 crates. (a) Work out the price elasticity of supply. [3] (b) Say whether supply is elastic or inelastic. [1] (c) Give one reason, with an explanation, why the grower cannot raise output by more. [2]

6. A furniture workshop (illustrative) sees the price of a chair fall from £60 to £54. It cuts output from 400 to 340 chairs a month. Work out the price elasticity of supply and decide whether supply is elastic or inelastic. [4]

7. Explain why the supply of fresh flowers is likely to be inelastic in the short run but more elastic in the long run. [4]

8. The table shows price elasticity of demand for four goods in a small country (illustrative).

Good	PED
A	-0.3
B	-1.8
C	-0.7
D	-3.2

(a) State which good has the most elastic demand. [1] (b) State two goods for which a price rise would increase revenue. [2] (c) Price rises by 10%. Calculate the percentage change in quantity demanded for good B and the percentage change in revenue. [3]

9. A gym (illustrative) raises its monthly fee from £30 to £36. Membership falls from 500 to 450. (a) Work out the price elasticity of demand. [3] (b) Find the change in monthly revenue. [2] (c) Explain one reason why demand for gym membership might be inelastic. [2] (d) Evaluate whether the gym should raise its fee by another 20%. [5]

10. A government (illustrative) adds a tax that raises the price of both good X and good Y by 10%. Good X has a PED of -0.3 and good Y has a PED of -2.5. Each good sells 1,000 units a week before the tax. (a) Find the percentage change in quantity demanded for each good. [2] (b) Calculate the new weekly sales of each good. [2] (c) Explain which good is better for raising tax revenue and which is better for cutting consumption. [3]

11. In a crowded town (illustrative) the supply of new houses has a price elasticity of 0.2. Demand for housing rises. (a) Calculate the percentage price rise needed for the number of houses supplied to rise by 4%. [2] (b) Explain the effect of inelastic supply on people looking to buy a home. [3] (c) Explain one way builders could make supply more elastic. [2]

12. A small bakery (illustrative) sells 1,000 muffins a week at £2.50. Each muffin costs £0.90 to make. The owner estimates PED at -0.4 and wants to raise the price by 20%. (a) Calculate the new price, the new weekly sales and the new weekly revenue. [4] (b) Evaluate whether the owner should raise the price. [5]

Answers

1. (a) PED = %ΔQd ÷ %ΔP, the percentage change in quantity demanded over the percentage change in price [1]. (b) Price change = 1 ÷ 5 × 100 = +20% [1]. Quantity change = -300 ÷ 2,000 × 100 = -15% [1]. PED = -15 ÷ 20 = -0.75 [1]. [4] Examiner insight: Show the two percentage changes separately before dividing, so that your reasoning is easy to follow and you can spot slips in the division.

2. (a) Price change = -8 ÷ 80 × 100 = -10% [1]. Quantity change = +45 ÷ 150 × 100 = +30% [1]. PED = 30 ÷ -10 = -3.0 [1]. (b) Elastic, because the size (3.0) is above 1 [1]. (c) Before: 80 × 150 = £12,000 [1]. After: 72 × 195 = £14,040 [1]. [6] Examiner insight: “Elastic” needs a reason tied to the number. Comparing the size of the answer with 1 is the quickest.

3. Few close substitutes [1]: drivers cannot switch easily to another fuel, so they keep buying when price rises [1]. Necessity or habit [1]: many drivers need the car to get to work, so they cannot cut their purchases much [1]. [4] Examiner insight: Each factor needs an explanation of how it limits the fall in quantity. A list of factor names on its own gives little to credit.

4. (a) -1.6 × 5% [1] = -8% [1]. (b) 900 × 0.92 [1] = 828 drills [1]. [4] Examiner insight: When the question gives the elasticity, rearrange the formula. Convert a percentage to a multiplier carefully: a fall of 8% is 0.92, not 0.08.

5. (a) Price change = 3 ÷ 12 × 100 = +25% [1]. Quantity change = 300 ÷ 2,000 × 100 = +15% [1]. PES = 15 ÷ 25 = 0.6 [1]. (b) Inelastic, because 0.6 is below 1 [1]. (c) Trees and crops take a long time to grow, so output cannot rise quickly in response to price [1]. The grower may also be at full capacity, with all land already planted [1]. [6] Examiner insight: A reason in (c) should match the product: growing time or land suits an orange grower.

6. Price change = -6 ÷ 60 × 100 = -10% [1]. Quantity change = -60 ÷ 400 × 100 = -15% [1]. PES = -15 ÷ -10 = 1.5 [1]. Supply is elastic as 1.5 is above 1 [1]. [4] Examiner insight: Two negatives give a positive PES. Check that your answer is positive, because supply normally moves in the same direction as price.

7. Flowers take weeks to grow [1], and cut flowers soon spoil so they cannot be stored [1]. In the long run, growers can plant more fields or build greenhouses [1], so output can respond more fully to price and PES rises [1]. [4] Examiner insight: Contrasting short and long run means you need a point about each. Writing only about the short run covers half the question.

8. (a) Good D [1]. (b) A [1] and C [1]. (c) Quantity: -1.8 × 10% = -18% [1]. Revenue index: 110% of price × 82% of quantity = 90.2% [1], so revenue falls by about 9.8% [1]. [6] Examiner insight: Pick goods by the size of PED, not its sign. A figure like -0.3 is nearer zero than -3.2, so it is the less elastic.

9. (a) The fee rises by £6 from £30, which is +20% [1]. Quantity change = -50 ÷ 500 × 100 = -10% [1]. PED = -10 ÷ 20 = -0.5 [1]. (b) Before: 30 × 500 = £15,000. After: 36 × 450 = £16,200 [1]. Revenue rises by £1,200 [1]. (c) Many members have a habit or a contract and are unwilling to change [1], so a price rise leads to a smaller percentage fall in membership [1]. (d) For: demand is inelastic at -0.5, so another 20% rise would be expected to cut membership by about 10% and raise revenue [1]. Gym costs are mostly fixed, so higher revenue is likely to mean higher profit [1]. Against: the PED comes from one price change and may not hold again, as members are likely to find cheaper gyms over time [1]. A bigger rise might also push the fee above what members regard as fair [1]. Judgement: a small increase may be sensible, but the gym should monitor sales and recompute PED, because the answer depends on rivals and on how long members stay [1]. [12] Examiner insight: An evaluation reaches a conclusion that depends on stated conditions, such as how quickly rivals respond, rather than repeating the calculation.

10. (a) X: -0.3 × 10% = -3% [1]. Y: -2.5 × 10% = -25% [1]. (b) X: 1,000 × 0.97 = 970 [1]. Y: 1,000 × 0.75 = 750 [1]. (c) Good X is better for raising revenue because few buyers are lost, so most of the tax is still collected [1]. Good Y is better for cutting consumption because quantity falls sharply [1]. A government wanting both revenue and lower use faces a trade-off [1]. [7] Examiner insight: Link each answer back to the number, using 970 units against 750 units. A statement about “inelastic goods” with no figure is weaker.

11. (a) Price rise = 4 ÷ 0.2 [1] = 20% [1]. (b) Supply cannot rise quickly [1], so extra demand mostly raises price instead of the number of homes [1]. Buyers pay more, and some may be priced out of the market or face a shortage [1]. (c) Builders can hold a stock of land or materials [1], or train more staff, so they can build faster when demand rises [1]. [7] Examiner insight: In (b), link inelastic supply to the price consequence; a shortage described without that link leaves the reasoning incomplete.

12. (a) New price = 2.50 × 1.20 = £3.00 [1]. Quantity change = -0.4 × 20% = -8% [1], so sales are 1,000 × 0.92 = 920 [1]. Revenue = 3.00 × 920 = £2,760, up from £2,500 [1]. (b) Revenue rises by £260 because demand is inelastic [1]. Making 80 fewer muffins saves £72, so weekly profit rises from £1,600 to £1,932 [1]. However, the PED is only an estimate and a 20% rise is large [1], so customers may switch to rivals or buy a different bakery product over time, and the true response could be bigger [1]. A balanced judgement is to raise price, perhaps in steps, and check sales each week, because the benefit depends on how rivals and customers react [1]. [9] Examiner insight: Support an evaluate answer with the figures from (a), then qualify them.

Where marks are usually lost

• Taking a percentage change of the new price or quantity, not the starting one.
• Putting the price change on the top line of the formula.
• Not stating whether demand or supply is elastic or inelastic when the question asks.
• Treating a negative PED as inelastic because the sign is negative.
• Writing 1,000 × 0.08 for an 8% fall, instead of 1,000 × 0.92.
• Naming a factor without saying how it changes the response to a price rise.
• Treating revenue and profit as the same thing.
• Evaluating with only one side of the argument, or with no final judgement.

Next steps

• Re-read the revision notes or the study guide for any question you missed.
• Visit the AQA GCSE Economics hub and the checklist.
• Try all the free 10-minute diagnostics.
• Next, book a free trial class.

Official syllabus

AQA GCSE Economics (8136) specification, for first teaching from September 2017, published by AQA. Sections 3.1.3.5 Price elasticity of demand and 3.1.3.6 Price elasticity of supply.