Cambridge A Level Economics: Price, income and cross elasticity of demand (9708) – 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 section 2.2 (outcomes 2.2.1 to 2.2.8) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. This is AS Level content, assumed knowledge for A Level Papers 3 and 4. All firms, places and figures are invented, and money is in currency units (cu). Read the study guide and the revision notes first. The course hub and checklist show the rest of the syllabus. Use the original value as the base.

Questions

1. Define price elasticity of demand. [2]

2. A ferry company raises the price of a crossing from 25 cu to 30 cu. Weekly passengers fall from 2,000 to 1,700.

(a) Calculate the price elasticity of demand. [2] (b) State whether demand is elastic or inelastic. [1] (c) Calculate the change in the company’s weekly revenue. [2]

3. In Country B, average income rises from 30,000 cu to 33,000 cu. Demand for organic vegetables rises from 400 to 500 units a week. Demand for dried noodles falls from 900 to 846 units a week.

(a) Calculate the income elasticity of demand for each good. [2] (b) Classify each good. [2]

4. The price of Brand A coffee pods rises from 2.00 cu to 2.50 cu. Demand for Brand B pods rises from 1,200 to 1,350. Separately, the price of a coffee machine rises from 80 cu to 88 cu and demand for pods falls from 2,500 to 2,400.

(a) Calculate the cross elasticity of demand of Brand B pods with respect to the price of Brand A pods. [2] (b) State the relationship between the two brands. [1] (c) Calculate the cross elasticity between machines and pods, and state the relationship. [2]

5. Demand for a good is given by Q = 90 − 3P, where Q is units and P is price in cu.

(a) Calculate the price elasticity of demand when P = 20. [2] (b) Calculate total revenue at P = 20, P = 15 and P = 10, and state which price gives the highest revenue of the three. [2] (c) Explain why elasticity differs along the curve although its slope is constant. [2]

6. A firm sells 800 units a week at 5.00 cu. It plans to cut the price to 4.50 cu. Its estimate of PED is −0.6.

(a) Calculate the percentage change in price. [1] (b) Calculate the predicted new weekly quantity. [1] (c) Calculate total revenue before and after the cut. [2] (d) Explain why revenue falls, and give one reason the firm might still cut the price. [2]

7. Explain two reasons why demand for rail season tickets is likely to be more price elastic over five years than over one month after a fare rise. [4]

8. Good M rises in price from 6 cu to 9 cu. Good N rises from 60 cu to 63 cu. For each good, quantity demanded falls from 80 to 70 units.

(a) Calculate PED for each good. [2] (b) Explain why the two values differ although both prices rose by 3 cu and both quantities fell by 10 units. [2]

9. A retailer expects incomes in Country B to rise by 4%. Its premium coffee has YED of +1.8 and its own-brand tinned beans have YED of −0.7.

(a) Calculate the expected percentage change in demand for each product. [2] (b) Explain two ways the retailer could use this information. [4]

10. A bus company charges a fare of 2.00 cu and carries 10,000 passengers a week. It considers raising the fare by 20%. Its research suggests PED is −0.4 in the short run and −1.3 in the long run.

Evaluate whether the company should raise the fare to increase revenue. [8]

11. A firm sells printers and cartridges. It cuts the printer price from 150 cu to 135 cu. Printer sales rise from 2,000 to 2,300 a month. Cartridge sales rise from 6,000 to 6,480 a month. A cartridge costs the customer 12 cu.

(a) Calculate PED for printers. [2] (b) Calculate XED of cartridges with respect to the printer price. [2] (c) Calculate the change in monthly revenue from printers and cartridges together. [3] (d) Explain one reason the firm might be wrong to rely on these figures when setting future prices. [2]

Answers

1. PED shows how far the quantity demanded of a good changes [1] when the price of that same good changes [1]. [2] Examiner insight: Name both halves: what responds (quantity demanded) and what changes (the good’s own price).

2. (a) %ΔP = (30 − 25) ÷ 25 = +20% and %ΔQd = (1,700 − 2,000) ÷ 2,000 = −15% [1]. PED = −15 ÷ 20 = −0.75 [1]. [2] (b) The size is below 1, so demand is inelastic [1]. [1] (c) Revenue before = 25 × 2,000 = 50,000 cu. After = 30 × 1,700 = 51,000 cu [1]. Revenue rises by 1,000 cu [1]. [2] Examiner insight: Show both percentage changes, so a marker can see the method behind the final figure. Link part (c) back to part (b).

3. (a) %ΔY = +10%. Organic vegetables: %ΔQd = +25%, so YED = +2.5 [1]. Noodles: %ΔQd = (846 − 900) ÷ 900 = −6%, so YED = −0.6 [1]. [2] (b) Organic vegetables are a normal good with income elastic demand (YED above 1) [1]. Noodles are an inferior good (negative YED) [1]. [2] Examiner insight: The sign carries the meaning for YED. A lost minus sign turns an inferior good into a normal one.

4. (a) %ΔP of A = +25% and %ΔQd of B = +12.5% [1]. XED = 12.5 ÷ 25 = +0.5 [1]. [2] (b) The brands are substitutes (positive XED). [1] [1] (c) %ΔP of machines = +10% and %ΔQd of pods = −4%, so XED = −0.4 [1]. The goods are complements [1]. [2] Examiner insight: Use the price of the other good as the denominator. Brand B’s own price would give a PED, not an XED.

5. (a) At P = 20, Q = 90 − 60 = 30 [1]. PED = (change in Q ÷ change in P) × (P ÷ Q) = −3 × (20 ÷ 30) = −2.0 [1]. [2] (b) At P = 20: 20 × 30 = 600. At P = 15: Q = 45, revenue = 675. At P = 10: Q = 60, revenue = 600 [1]. Revenue is highest at P = 15 [1]. [2] (c) Slope compares absolute changes, but elasticity compares percentage changes [1]. Moving down the curve, a given price fall becomes a bigger percentage of a falling price while a given quantity rise becomes a smaller percentage of a rising quantity, so elasticity falls [1]. [2] Examiner insight: At P = 15 the PED is −1, which is why revenue peaks there. Linking the results is stronger than listing figures.

6. (a) (4.50 − 5.00) ÷ 5.00 = −10% [1]. [1] (b) %ΔQd = −0.6 × −10 = +6%, so new quantity = 800 × 1.06 = 848 [1]. [1] (c) Before = 5.00 × 800 = 4,000 cu. After = 4.50 × 848 = 3,816 cu [1]. Revenue falls by 184 cu [1]. [2] (d) Demand is inelastic, so the quantity rise (6%) is smaller than the price fall (10%) [1]. The firm might still cut to win market share, or to clear stock before it spoils [1]. [2] Examiner insight: Compare the two percentages. “Price cuts raise sales” alone does not explain why revenue fell.

7. Time to find substitutes: over five years commuters can move closer to work or buy a car [1], so more stop buying tickets and quantity falls by a larger percentage [1]. Time to change habits: in one month travellers are tied to their routine and home [1], but these ties loosen over five years, so demand responds more to the same rise [1]. [4] Examiner insight: Name the factor, then say why it makes demand more elastic.

8. (a) Good M: %ΔP = +50%, %ΔQd = (70 − 80) ÷ 80 = −12.5%, PED = −0.25 [1]. Good N: %ΔP = +5%, %ΔQd = −12.5%, PED = −2.5 [1]. [2] (b) The same absolute rise of 3 cu is 50% of M’s price but only 5% of N’s price [1]. Elasticity uses percentage changes, so the same quantity response is small relative to M’s large price change and large relative to N’s small one [1]. [2] Examiner insight: Quote both bases (6 and 60) and give the reason: a different starting price.

9. (a) Premium coffee: 1.8 × 4 = +7.2% [1]. Own-brand beans: −0.7 × 4 = −2.8% [1]. [2] (b) The retailer could stock more premium coffee in anticipation of higher demand [1], avoiding shortages as incomes rise [1]. It could reduce shelf space for the beans [1], since sales are expected to fall, freeing space for goods with higher YED [1]. [4] Examiner insight: Tie each use to a number from part (a), and note that YED values are estimates.

10. Fare rises 20%, from 2.00 to 2.40 cu [1]. In the short run, quantity falls 0.4 × 20 = 8% to 9,200 passengers. Revenue rises from 20,000 to 2.40 × 9,200 = 22,080 cu [1]. In the long run, quantity falls 1.3 × 20 = 26% to 7,400. Revenue = 2.40 × 7,400 = 17,760 cu, below 20,000 [1] [1]. Demand is more elastic over time because passengers find alternatives, such as cars or moving closer to work [1], and habits change slowly [1]. Judgement: the rise helps revenue only in the short run, so it depends on the time horizon [1]. Fewer passengers also reduce costs, and revenue is not profit, so the company would need cost data, and consider the effect on riders and rival transport [1]. [8] Examiner insight: Calculate both time horizons, then use the contrast for the judgement. Say under which conditions the rise works.

11. (a) %ΔP = −10%, %ΔQd = (2,300 − 2,000) ÷ 2,000 = +15% [1]. PED = −1.5 [1]. [2] (b) %ΔQd of cartridges = (6,480 − 6,000) ÷ 6,000 = +8% [1]. XED = 8 ÷ −10 = −0.8 (complements) [1]. [2] (c) Printers: 150 × 2,000 = 300,000 and 135 × 2,300 = 310,500, a rise of 10,500 [1]. Cartridges: 12 × 6,000 = 72,000 and 12 × 6,480 = 77,760, a rise of 5,760 [1]. Total rise = 16,260 cu a month [1]. [3] (d) The values come from past data and one price change [1]. Competitors may react, tastes may change, and the elasticity may differ at a different price level [1]. [2] Examiner insight: Revenue is only part of the decision: note that the firm needs cost data to judge profit.

Where marks are usually lost

• Dropping the sign of YED or XED, or ignoring the sign on PED.
• Using the new value as the base without saying so.
• Calling a size of 0.75 or 0.9 elastic.
• Putting the wrong price in XED: it is the price of the other good.
• Assuming a steeper demand curve has lower elasticity at every point.
• Naming a factor affecting elasticity without explaining the direction.
• Concluding an evaluation question with a summary and no judgement.

Next steps

• Review the revision notes and the study guide.
• Return to the course hub and the printable checklist.
• Try the price system practice set for the rest of topic 2.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, section 2.2 (Cambridge University Press & Assessment).