Edexcel IAL Economics: Rational choice, demand and elasticities (YEC11) – 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 1.3.2 Consumer behaviour and demand, items 1 to 3, of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification (YEC11), Issue 2, June 2018. The content is in Unit 1 (labelled IAS, and also part of the full IAL). All figures are invented, in invented currency units.

Links: study guide, revision notes, Edexcel economics hub, printable checklist and free 10-minute diagnostics.

Questions

1. State what economists assume about the aims of consumers and of firms. [2]

2. Cinema A advertises tickets at 9.00 plus a 1.00 booking fee. Cinema B charges 10.00 with no fee. Many people choose Cinema A. Explain why this suggests consumers may not maximise utility. [4]

3. A shop sells a large pack of cereal (900 g for 4.32) and a medium pack (600 g for 2.76). Many shoppers assume the large pack is cheaper per gram. (a) Calculate the price per 100 g of each pack. [2] (b) Explain which reason for non-rational choice this shows. [2]

4. A buyer’s total utility from 1 to 5 cups of coffee in a morning is 36, 60, 78, 90 and 96 utils. One util is worth 0.25. (a) Calculate the marginal utility of each cup. [2] (b) Find how many cups the buyer takes at a price of 4.50 and at a price of 3.00. [2] (c) Explain how this supports a downward-sloping demand curve. [2]

5. In the market for electric scooters (a normal good), for each event, say whether demand moves along its curve or the curve itself shifts, and give the direction. (i) The price of scooters falls. (ii) The price of helmets, a complement, falls. (iii) Real incomes fall. [3]

6. A hardware store raises the price of a tin of paint from 20 to 22. Weekly sales fall from 300 to 279 tins. Calculate PED, describe the demand and calculate the change in revenue. [4]

7. Real incomes rise by 5%. Demand for good X rises from 2,000 to 2,160 units. Demand for good Y falls from 3,000 to 2,910 units. Calculate YED for each good and classify each. [4]

8. The price of good M rises from 5.00 to 5.60. Demand for good N falls from 2,400 to 2,184 units. Calculate XED and state the likely relationship between M and N. [3]

9. A straight-line demand curve is P = 80 - 4Q. (a) Calculate PED for a price fall from 64 (quantity 4) to 60 (quantity 5). [3] (b) Calculate PED for a fall from 16 (quantity 16) to 12 (quantity 17). [2] (c) At a price of 40 and quantity 10, revenue is 400. State, with revenue figures at 64 and 16, the price that maximises revenue and PED there. [2]

10. Explain why PED for table salt is likely to be lower than PED for a premium brand of sports shoes. [4]

11. A theme park has 50,000 visitors at a ticket price of 30. Its manager estimates PED at -1.8 and plans an 8% price rise. (a) Calculate the new price, visitor numbers and revenue. [4] (b) Evaluate whether the park should raise the price. [4]

12. A government plans a per-unit tax of 1.00 on a good priced at 8.00 with sales of 60,000 units and PED of -0.3. Assume the tax is passed on in full. (a) Calculate the new quantity and tax revenue. [4] (b) Evaluate the tax as a way to raise revenue and cut consumption. [6]

Answers

1. Consumers aim to maximise utility [1]. Firms aim to maximise profit [1]. [2] Examiner insight: Answers gain credit by naming the aim for each group; “make decisions logically” does not say what is being maximised.

2. Both tickets cost 10.00 in total [1]. The 1.00 fee is a separate, smaller add-on, so the 9.00 headline price looks cheaper [1]. The choice is driven by how the price is presented (framing), not by the utility from the film [1]. A utility maximiser would treat equal total prices as equal [1]. [4] Examiner insight: Show the arithmetic that the totals match; an explanation that never proves the options are identical is harder to credit.

3. (a) Large: 4.32 / 9 = 0.48 per 100 g [1]. Medium: 2.76 / 6 = 0.46 per 100 g [1]. [2] (b) Poor computational skills, because shoppers do not work out unit prices [1]. The assumption that bigger means cheaper is a bias, so buyers pay more per gram than necessary, failing to maximise utility [1]. [2] Examiner insight: Name the reason from the specification list, then link it to the figures.

4. (a) Marginal utility is the change in total utility: first cup 36 [1], then 24, 18, 12 and 6 [1]. [2] (b) Money values at 0.25 per util are 9.00, 6.00, 4.50, 3.00 and 1.50 [1]. The buyer takes a cup while its value is at least the price: 3 cups at 4.50 and 4 cups at 3.00 [1]. [2] (c) Each extra cup adds less utility (diminishing marginal utility) [1]. So a lower price is needed to make another cup worth buying, giving more quantity at lower prices [1]. [2] Examiner insight: Convert utils to money before comparing with price; an answer that compares utils with a price directly cannot reach a quantity.

5. (i) Movement along the curve (extension), because only the good’s own price changed [1]. (ii) A shift to the right, because cheaper complements raise demand at every scooter price [1]. (iii) A shift to the left, because a normal good is bought less as real income falls [1]. [3] Examiner insight: State which way the change goes as well as its kind. “Shift” alone leaves the second half of each answer unmade.

6. %P = 2 / 20 = +10% [1]. %Q = -21 / 300 = -7%, so PED = -7 / 10 = -0.7 [1]. This is price inelastic [1]. Revenue rises from 300 x 20 = 6,000 to 279 x 22 = 6,138, an increase of 138 [1]. [4] Examiner insight: Linking the revenue rise to the inelastic value shows you understand why, not just the arithmetic.

7. X: %Q = 160 / 2,000 = +8%, so YED = 8 / 5 = +1.6 [1]. Y: %Q = -90 / 3,000 = -3%, so YED = -3 / 5 = -0.6 [1]. X is a normal, income-elastic good [1]. Y is an inferior good [1]. [4] Examiner insight: Keep the sign. The negative sign alone is what identifies Y as inferior, so a bare “0.6” loses that point.

8. %P = 0.60 / 5.00 = +12% [1]. %Q = -216 / 2,400 = -9%, so XED = -9 / 12 = -0.75 [1]. The negative value shows M and N are complements [1]. [3] Examiner insight: After the number, state what it says about the relationship; the value alone is incomplete.

9. (a) %P = -4 / 64 = -6.25% [1]. %Q = +1 / 4 = +25% [1]. PED = 25 / -6.25 = -4 [1]. [3] (b) %P = -4 / 16 = -25% and %Q = +1 / 16 = +6.25% [1]. PED = -0.25 [1]. [2] (c) Revenue is 4 x 64 = 256 at the top, 400 at the middle and 16 x 16 = 256 at the bottom, so revenue is highest at a price of 40 [1]. PED there is -1 (unitary) [1]. [2] Examiner insight: Work from the original point each time. The point of this question is that one straight line gives elastic and inelastic values.

10. Salt takes a tiny share of spending, so a price rise is hardly noticed and buyers do not change quantity much [1]. Shoes cost a large share of income, so buyers compare prices and delay or cut purchases [1]. Salt has few real alternatives, so switching gains little [1]. Premium shoes face many close substitutes, even with branding, so some buyers switch if the price rises [1]. [4] Examiner insight: Each determinant needs its mechanism; “salt is cheap” with no link to buyer response stays at description.

11. (a) New price = 30 x 1.08 = 32.40 [1]. %Q = -1.8 x 8 = -14.4% [1]. Visitors = 50,000 x 0.856 = 42,800 [1]. Revenue = 42,800 x 32.40 = 1,386,720, down from 1,500,000 [1]. [4] (b) Revenue falls by 113,280 (about 7.6%) because demand is elastic [1]. So the rise is not sensible if revenue is the aim [1]. However, serving 7,200 fewer visitors may cut costs, so profit could differ from revenue [1]. The PED estimate may not hold for this price range, and the response may differ in busy and quiet seasons [1]. [4] Examiner insight: A recommendation that rests on the number and then names one limit on it usually reads as evaluation; a one-sided verdict does not.

12. (a) %P = 1 / 8 = +12.5% [1]. %Q = -0.3 x 12.5 = -3.75% [1]. New quantity = 60,000 x 0.9625 = 57,750 [1]. Tax revenue = 57,750 x 1.00 = 57,750 [1]. [4] (b) Revenue: with demand this inelastic the quantity base stays large and the tax raises 57,750 [1]. If PED were -1.6, quantity would fall 20% to 48,000 and revenue would be lower, so inelastic demand favours the revenue aim [1]. Consumption: it falls by only 2,250 units, so the tax does little to cut use [1]. Consumers: spending rises from 480,000 to 519,750, which weighs on low-income buyers [1]. Limits: PED may rise over time as substitutes appear, and may differ at other prices [1]. Judgement: the tax suits a revenue goal better than a consumption goal, and a supporting policy would be needed for the second [1]. [6] Examiner insight: Separate the two aims and judge each one; blending them into a single verdict usually leaves one aim unevaluated.

Where marks are usually lost

• Dividing by the new figure rather than the original in a percentage change.
• Dropping the sign of an elasticity, then misclassifying inferior goods or complements.
• Giving a PED value with no interpretation or no revenue consequence.
• Treating a fall or rise in the good’s own price as a shift of demand.
• Converting utility into money values incorrectly, or not at all, before reading off quantity.
• Calling a whole straight-line demand curve elastic or inelastic.
• Naming a determinant of PED without explaining the mechanism.
• Writing evaluation as a list of caveats with no verdict.

Next steps

• Review the revision notes and the study guide.
• Use the Edexcel economics hub and the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Source: Pearson Education Limited, Edexcel International Advanced Subsidiary/Advanced Level in Economics (specification, Issue 2, June 2018; first teaching September 2018), section 1.3.2 Consumer behaviour and demand, items 1 to 3.