OxfordAQA International AS and A-level Economics: Demand and elasticities (9640) – 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.

The questions cover sections 3.1.2.1 and 3.1.2.2 of OxfordAQA’s economics specification (9640, version 1.2). That is International AS content, which also counts towards the International A-level. Quantitative skills QS2 and QS8 can appear in any unit. Every market, firm and figure is invented and illustrative. Background is in the study guide and revision notes. Other links: course hub, checklist and diagnostics.

Questions

1. A small bakery sells sourdough loaves. State whether each event causes a movement along the demand curve or a shift of it, and give the direction. (i) The bakery cuts its own price. (ii) A rival bakery cuts its price. (iii) Local house prices rise, increasing residents’ wealth. [3]

2. Explain two social or emotional influences on the demand for fashion clothing. [4]

3. In a town, a gym raises its monthly fee from 30 to 33. The number of members falls from 1,000 to 940.

(a) Calculate the price elasticity of demand. [3] (b) Classify demand as elastic or inelastic. [1]

4. A cafe sells 400 cups of coffee a day at 3.00 each. The price elasticity of demand is −2.2. The owner cuts the price by 5%. Calculate the new daily quantity, the new price and the percentage change in total revenue. Explain the result. [4]

5. In Country C, household income rises by 6%. Demand for a budget packaged meal falls by 3%.

(a) Calculate the income elasticity of demand. [2] (b) What does the value tell you about the type of good? [2]

6. (a) The price of Brand P tablets rises by 8%. Demand for Brand Q tablets rises by 12%. Calculate the cross elasticity of demand and state the relationship between the goods. [3] (b) The price of a games console rises by 5%. Demand for its games falls by 6%. Calculate the cross elasticity of demand and state the relationship. [2]

7. A market has the demand schedule below (invented).

Price	6	8	10	12	14
Quantity	210	180	150	120	90

(a) Work out the total revenue at every price in the table. [2] (b) Calculate the price elasticity of demand when price rises from 6 to 8. [2] (c) Calculate the price elasticity of demand when price rises from 12 to 14. [2] (d) Explain why the two values differ and identify the price that maximises revenue. [2]

8. Explain why the price elasticity of demand for one brand of breakfast cereal is likely to be higher than for breakfast cereal as a whole. [6]

9. Ferry operator R raises its fares by 4%. The cross elasticity of demand for ferry operator S’s tickets with respect to R’s fares is +2.1.

(a) Calculate the expected percentage change in demand for S’s tickets. [2] (b) Analyse how this information could help S decide on its own pricing and capacity. [4]

10. Country D’s real incomes are forecast to grow by 3.5% next year. A firm sells 4,000 home cinema systems (income elasticity +2.2) and 9,000 own-label canned meals (income elasticity −0.8) a year.

(a) Calculate the forecast annual sales of each product, other things equal. [4] (b) Evaluate whether the firm should move production capacity from canned meals to home cinema systems. [4]

11. A small publisher sells a guidebook at 20 and sells 2,000 copies a month. It raises the price to 22 and sales fall to 1,900.

(a) Calculate the price elasticity of demand and the change in total revenue. [4] (b) Evaluate whether the publisher was right to raise the price. [6]

Answers

1. (i) Movement along the curve (an extension of quantity demanded). [1] (ii) Shift left, because the substitute has become cheaper. [1] (iii) Shift right, because wealth rises and normal goods are bought more. [1] Examiner insight: A direction is needed as well as the word movement or shift. Answers tend to gain credit when each choice is tied to the cause, not just asserted.

2. Fashion or peer influence: people want what friends or others are wearing. [1] This raises the quantity demanded at every price, shifting the curve right, until the trend fades. [1] Status or mood: buying to signal success or to lift spirits. [1] Demand shifts right when feelings favour the purchase and left when they do not. [1] Examiner insight: Naming a factor earns little unless it is linked to a change in demand at every price. Keep each factor to its own paragraph so the two points stay separate.

3. (a) % change in price = 3 ÷ 30 × 100 = +10%. [1] % change in quantity = −60 ÷ 1,000 × 100 = −6%. [1] PED = −6 ÷ 10 = −0.6. [1] (b) The value is under 1 in size, so demand is price inelastic. [1] Examiner insight: Set out each percentage change before dividing. Showing each step makes the method clear and lets a slip be spotted.

4. Quantity change = −2.2 × −5% = +11%, so new quantity = 400 × 1.11 = 444 cups. [1] New price = 3.00 × 0.95 = 2.85. [1] Revenue was 400 × 3.00 = 1,200 and is now 444 × 2.85 = 1,265.40, a rise of about 5.5%. [1] Demand is elastic, so the proportional rise in quantity outweighs the fall in price. [1] Examiner insight: Working in multipliers (0.95 × 1.11) is a quick check. Adding the two percentages gives −5 + 11 = 6, which only approximates 5.5.

5. (a) YED = % change in quantity ÷ % change in income = −3 ÷ 6. [1] = −0.5. [1] (b) A negative value shows an inferior good. [1] As incomes rise, households switch from it to preferred alternatives, so demand falls. [1] Examiner insight: The minus sign carries the meaning. Dropping it loses the classification as well as the value.

6. (a) XED = +12 ÷ +8. [1] = +1.5. [1] Positive, so the goods are substitutes. [1] (b) XED = −6 ÷ +5 = −1.2. [1] Negative, so the goods are complements. [1] Examiner insight: Put the quantity change of the other good on top and the price change on the bottom. Reversing them gives a different, wrong value.

7. (a) Revenue = price × quantity: 6 × 210 = 1,260; 8 × 180 = 1,440; 10 × 150 = 1,500; 12 × 120 = 1,440; 14 × 90 = 1,260. [1] All five values correct. [1] (b) % change in price = 2 ÷ 6 = +33.3%. % change in quantity = −30 ÷ 210 = −14.3%. [1] PED = −0.43. [1] (c) % change in price = 2 ÷ 12 = +16.7%. % change in quantity = −30 ÷ 120 = −25%. [1] PED = −1.5. [1] (d) The same absolute price rise is a large percentage of a low price but a smaller percentage of a high price, and the reverse for quantity, so a straight-line curve is inelastic at the bottom and elastic at the top. [1] Revenue is highest at 10, where demand is unit elastic. [1] Examiner insight: Use the original value as the base in each calculation and say so. A comment that separates the percentage changes from the absolute changes shows understanding.

8. Closer substitutes: other brands of cereal are very similar, so a price rise on one brand sends buyers to rivals. [1] Quantity falls by a larger proportion than price rises, so PED is large. [1] For cereal as a whole the alternatives (toast, porridge) are fewer or less close. [1] Breadth of definition: the narrower the market, the more substitutes outside it. [1] Buyers of one brand lose little by changing, but buyers of the whole category must change what they eat. [1] So the category’s demand is less responsive to its price. [1] Examiner insight: Compare the brand with the whole category in every sentence. Answers that describe only the brand tend to leave the comparison unproven.

9. (a) % change in demand = XED × % change in R’s fare. [1] = 2.1 × 4 = +8.4%. [1] (b) S can expect more demand, so it may keep its fares, because the gain arrives without a cut. [1] A high XED means S’s own customers may leave if R cuts again, so S must watch R’s price. [1] If S is near capacity it could raise fares, but the effect on revenue depends on S’s own PED, which this figure does not give. [1] R’s rise may be temporary, so S should avoid building long-run capacity on a short-run change. [1] Examiner insight: Stay with what the figure tells you and flag what it does not. Analysis tends to score when it follows a chain: higher demand, then the decision, then the limit on the decision.

10. (a) Cinema systems: 2.2 × 3.5 = +7.7%. [1] 4,000 × 1.077 = 4,308. [1] Canned meals: −0.8 × 3.5 = −2.8%. [1] 9,000 × 0.972 = 8,748. [1] (b) For: sales of cinema systems grow while canned meals shrink, so capacity is better used on the growing product. [1] Against: the forecast depends on income growing as predicted and on other influences staying unchanged, which is unlikely. [1] Further, 308 extra cinema systems against 252 fewer canned meals is a small shift in volume, and costs and margins are not given. [1] Judgement: partial or gradual reallocation is wise until the forecast and margins are confirmed. [1] Examiner insight: A reasoned judgement tends to gain credit, not a list of points. State what extra information would settle the decision.

11. (a) % change in price = +10%; % change in quantity = −5%; PED = −0.5. [2] Revenue was 20 × 2,000 = 40,000 and is now 22 × 1,900 = 41,800, a rise of 4.5%. [2] (b) Demand is inelastic, so revenue rose as the rule predicts. [1] Fewer copies are printed, so costs of production fall, and profit rises by more than revenue. [1] However, the fall in sales is one month’s response, and in the long run readers may find alternatives such as other guides, so PED may rise. [1] A 10% rise is fairly large, so the rule is less reliable. [1] Other things may not have stayed equal, for example rival prices or the season. [1] Judgement: the rise looks right on current evidence, but the publisher should monitor sales over several months. [1] Examiner insight: A one-sided answer rarely reaches the top. Credit is more likely when each evaluative point is explained and a final judgement is supported.

Where marks are usually lost

• Using absolute changes in a calculation rather than percentage changes.
• Missing the sign on YED and XED, then misreading the good.
• Writing “shift” for a price change.
• Leaving the answer as a number with no statement of what it means.
• Stating what happens to revenue without saying why in terms of elasticity.
• Describing a factor without linking it to a more or less elastic response.
• Giving a list of evaluation points with no judgement at the end.
• Forgetting that a rule based on elasticity is weaker for large changes.

Next steps

• Revisit the revision notes and the study guide.
• Return to the OxfordAQA Economics hub and the checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Source: the OxfordAQA International AS and A-level Economics (9640) specification, version 1.2, Oxford International AQA Examinations. Sections 3.1.2.1 and 3.1.2.2, with QS2 and QS8 from 3.5.