Cambridge O Level Economics: Price elasticity of demand: calculation, determinants and revenue (2281) – 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 are aligned to section 2.7 (price elasticity of demand) of the Cambridge O Level Economics 2281 syllabus for examination in 2026. The course is not tiered, and the official text says calculators may be used. Every firm, country, market and figure below is invented for practice.

Need a refresher first? Read the study guide or the revision notes. The Cambridge O Level Economics hub and the printable checklist show where the unit sits. For a quick check of your level, try the free diagnostics.

Questions

1. Define price elasticity of demand. [2]

2. A shop (invented) raises the price of a pack of batteries from 40 to 44. Weekly sales fall from 250 packs to 235 packs.

(a) Calculate the price elasticity of demand. Show your working. [3] (b) State whether demand is elastic or inelastic. [1]

3.

(a) State the value of price elasticity of demand shown by a vertical demand curve. [1] (b) State the value shown by a horizontal demand curve. [1] (c) Two demand curves, A and B, are drawn on the same axes and the same scales. A is steeper than B. State which curve shows the more elastic demand and explain why. [2]

4. Explain why demand for one brand of orange squash is likely to be more price elastic than demand for fruit drinks in general. [4]

5. A theatre (invented) sells 3,000 tickets a week at a price of 20. The price elasticity of demand for its tickets is -1.5. The theatre cuts the price by 8%.

(a) Calculate the new quantity of tickets sold. [2] (b) Calculate the change in total revenue and explain it using the value of PED. [4]

6. A car park (invented) records the number of cars parked each day at different daily charges.

Charge	Cars per day
10	120
12	108
14	84
16	60

(a) Calculate total revenue at each charge. [2] (b) Calculate the price elasticity of demand for each of the three rises in charge. [3] (c) State the charge that gives the highest revenue and link your answer to your results in (b). [2]

7. A café (invented) cuts the price of a lunch box from 20 to 15. Daily sales rise from 100 to 110.

(a) Calculate the price elasticity of demand. [2] (b) Describe, using the idea of a revenue rectangle under the demand curve, what happens to total revenue. [2]

8. Country A (invented) puts a tax of 5 a unit on a good. This raises the price from 50 to 55. Before the tax, 20,000 units were sold each month. Compare the monthly tax revenue if PED is -0.2 with the revenue if PED is -1.2, and comment on what the result means for the government. [5]

9. A household (invented) spends 600 a month on cooking fuel. The price of the fuel rises by 20%. The price elasticity of demand is -0.25. Calculate the household’s new monthly spending and explain why demand has this elasticity. [4]

10. A ferry company (invented) charges 20 a trip. Each week it carries 3,000 commuter trips, where PED is estimated at -0.4, and 1,000 tourist trips, where PED is estimated at -1.6. The company is considering a 10% rise in the fare for both groups.

(a) Calculate the change in weekly revenue from commuters. [2] (b) Calculate the change in weekly revenue from tourists. [2] (c) Recommend whether the company should raise the fare, using your results and one limitation of the information. [4]

11. The government of Country G (invented) wants to reduce the use of a harmful product. It plans a tax that would raise the price by 20%. Studies suggest PED in the short run is -0.3.

(a) Calculate the expected percentage change in quantity demanded. [1] (b) Evaluate whether the tax is a good way to reduce use of the product. [7]

Answers

1. PED measures the responsiveness [1] of quantity demanded to a change in the price of the good [1]. [2] Examiner insight: A definition needs both what changes (quantity demanded) and what causes it (price). “How much demand changes” alone does not say what drives the change.

2. (a) % change in price = (44 - 40) / 40 x 100 = +10% [1]. % change in quantity = (235 - 250) / 250 x 100 = -6% [1]. PED = -6 / +10 = -0.6 [1]. [3] (b) The size, 0.6, is less than 1, so demand is inelastic [1]. [1] Examiner insight: Show both percentage changes before dividing. A final figure alone gives the reader nothing to credit if one step slipped.

3. (a) Zero [1]. [1] (b) Infinite [1]. [1] (c) Curve B is more elastic [1] because, for the same change in price, quantity demanded changes by more along the shallower curve [1]. [2] Examiner insight: Comparing two curves is only fair on the same scales, so say that you are assuming this.

4. Availability of close substitutes is a main determinant of PED [1]. Other brands of orange squash are very close substitutes for one brand [1]. If that brand raises its price, buyers switch to rivals, so quantity demanded falls by a larger percentage than price rose [1]. For fruit drinks as a whole, buyers have fewer alternatives that they would accept, so the response to a price rise is smaller [1]. [4] Examiner insight: Name the determinant, apply it to the product, then trace the effect on quantity. Listing “substitutes” without the chain usually leaves part of the question unanswered.

5. (a) % change in quantity = -1.5 x -8 = +12% [1]. New quantity = 3,000 x 1.12 = 3,360 [1]. [2] (b) New price = 20 x 0.92 = 18.40 [1]. Old revenue = 20 x 3,000 = 60,000 [1]. New revenue = 18.40 x 3,360 = 61,824, so revenue rises by 1,824 [1]. Demand is elastic (PED size above 1), so the percentage rise in quantity is larger than the percentage fall in price [1]. [4] Examiner insight: A price cut raising revenue is the classic sign of elastic demand. Say why, not just that it happened.

6. (a) Revenue = charge x cars: 10 x 120 = 1,200; 12 x 108 = 1,296; 14 x 84 = 1,176; 16 x 60 = 960 [2]. [2] (b) From 10 to 12: price +20%, quantity (108 - 120) / 120 = -10%, PED = -0.5 [1]. From 12 to 14: price +16.7%, quantity (84 - 108) / 108 = -22.2%, PED = -1.33 [1]. From 14 to 16: price +14.3%, quantity (60 - 84) / 84 = -28.6%, PED = -2.0 [1]. [3] (c) The highest revenue is at a charge of 12 [1]. Moving from 10 to 12 is on inelastic demand, so revenue rises, while moving from 12 to 14 is on elastic demand, so revenue falls [1]. [2] Examiner insight: Using the old price as the base for every step, and saying so, keeps your working easy to follow. Link the revenue pattern back to the elasticity values rather than describing them separately.

7. (a) % change in price = (15 - 20) / 20 x 100 = -25% [1]. % change in quantity = (110 - 100) / 100 x 100 = +10%. PED = 10 / -25 = -0.4 [1]. [2] (b) Revenue falls from 2,000 (20 x 100) to 1,650 (15 x 110) [1]. In the rectangle, the strip lost at the top from the lower price on the old sales is larger than the strip gained at the right from the extra sales, because demand is inelastic [1]. [2] Examiner insight: A diagram described in words needs both the strip gained and the strip lost. Naming only one gives an incomplete explanation.

8. If PED is -0.2: quantity falls 2% [1], to 19,600 units, so tax revenue = 19,600 x 5 = 98,000 [1]. If PED is -1.2: quantity falls 12% [1], to 17,600 units, so tax revenue = 17,600 x 5 = 88,000 [1]. The government raises more revenue where demand is inelastic, but that also means consumption falls less, so the tax is a weak way to cut use of the good [1]. [5] Examiner insight: A comment on the government’s position needs a link between the figures and a policy aim, such as revenue or reducing consumption.

9. Quantity falls by 0.25 x 20 = 5% [1]. New spending = 600 x 1.20 x 0.95 = 684 [1], an increase of 84 [1]. Demand is inelastic because cooking fuel is a necessity with few substitutes in the short run, so the household cannot cut back much [1]. [4] Examiner insight: “Why” questions about a PED value need a determinant tied to the good. Keep your explanation about this household and this fuel.

10. (a) Commuters: quantity falls 0.4 x 10 = 4%, to 2,880 trips [1]. New revenue = 22 x 2,880 = 63,360, against 60,000, a rise of 3,360 [1]. [2] (b) Tourists: quantity falls 1.6 x 10 = 16%, to 840 trips [1]. New revenue = 22 x 840 = 18,480, against 20,000, a fall of 1,520 [1]. [2] (c) Total revenue rises from 80,000 to 81,840, a rise of 1,840 [1]. A rise looks worthwhile, mainly because of commuters [1]. The estimates of PED may be wrong, or demand may become more elastic over time as commuters find other routes [1]. Revenue is not profit, so the company should also consider the cost of carrying fewer passengers and the loss of tourist trade [1]. [4] Examiner insight: A recommendation is judged on the reasons given. Quote the figures, then add a qualification that applies to this case, not a generic one.

11. (a) Quantity falls by 0.3 x 20 = 6% [1]. [1] (b) Demand is inelastic, so a 20% price rise cuts quantity by only 6% [1]. The tax therefore raises substantial revenue for the government [1], but it does not reduce use much, so the aim is only partly met [1]. In the long run, buyers find substitutes and demand becomes more elastic, so the tax may become more effective [1]. A tax may also hit low-income buyers hard if the product is a habit, because they keep buying and pay more [1]. Other measures, such as information campaigns or rules on sales, might work alongside the tax [1]. Overall, the tax is better at raising revenue than at reducing use in the short run, and it works best as part of a wider set of policies [1]. [7] Examiner insight: Evaluation needs a judgement that follows from the points made, not just a list. Consider the time period and who is affected.

Where marks are usually lost

• Writing the formula the wrong way round, with price on top.
• Starting a percentage change from the final figure instead of the original one.
• Giving a PED figure without saying whether demand is elastic or inelastic.
• Treating a negative PED as meaning “inelastic”.
• Naming a determinant without applying it to the product in the question.
• Giving the revenue rule from memory but not using the figures supplied.
• Describing a revenue rectangle with only the gained strip or only the lost strip.
• Treating revenue as profit in a question about a firm’s decision.
• Giving an evaluation with no judgement, or one that ignores the time period.

Next steps

• Review the revision notes and the study guide.
• Go to the Cambridge O Level Economics hub and the checklist.
• Find your weak spots with the free diagnostics.
• Book a free trial class if any answer here surprised you.

Official syllabus

Cambridge O Level Economics 2281 syllabus for examination in 2026 (version 2), published by Cambridge Assessment International Education, part of Cambridge University Press & Assessment. This page covers section 2.7.