Economics

1. 1.

   A fall in the price of tea increases tea purchases. Explain why this is not itself an increase in demand.

   [2 marks] · no calculator

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. Hold income, tastes and other prices constant. The lower tea price produces an extension of quantity demanded on the same curve; higher income might instead shift that curve.

   Marking points

   • An own-price change causes movement along the demand curve.
   • An increase in demand is an outward shift at each price due to a non-price determinant.

   Examiner tip: Use 'quantity demanded' for an own-price movement.

2. 2.

   Fictional market: Qd = 120 - 2P and Qs = 20 + 3P, where quantities are units per day and P is currency units. Calculate equilibrium price and quantity.

   [3 marks]

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. Rearrange to 100 = 5P, then substitute P = 20 into either curve: 120 - 40 = 80 and 20 + 60 = 80. Both quantities agree.

   Marking points

   • Equates 120 - 2P = 20 + 3P.
   • P = 20 currency units.
   • Q = 80 units per day.

   Examiner tip: Check the calculated price in both equations.

3. 3.

   Fictional case: Sora raises ticket prices from 10 to 12; sales fall from 1000 to 850. Using initial values as percentage-change bases, calculate PED and both revenues; explain the revenue change.

   [4 marks]

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. Use the initial price and quantity, not midpoint bases. Multiply each actual price by its corresponding sales to verify that the price rise outweighs lost sales in revenue terms.

   Marking points

   • Quantity change = -15%; price change = 20%.
   • PED = -15/20 = -0.75, inelastic in magnitude.
   • Revenue changes from 10000 to 10200 currency units.
   • The revenue factor is 1.20 * 0.85 = 1.02, so revenue increases by 2%.

   Examiner tip: A revenue increase is not automatically a profit increase.

4. 4.

   Fictional case: the price of bus travel rises 8% and demand for rail travel rises 12%, with other determinants fixed. Calculate cross elasticity and analyse what could weaken the inference that the modes are substitutes if the ceteris paribus assumption fails.

   [4 marks]

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. Divide the change in demand for one good by the change in the other good's price. The sign classifies the relationship only if the shift really reflects that price change rather than another demand determinant.

   Marking points

   • Cross elasticity = 12/8 = +1.5.
   • The positive value indicates substitution under the stated assumption.
   • A concurrent rail service improvement could independently raise rail demand.
   • Without controlling that change, the observed ratio may overstate the price response.

   Examiner tip: Do not put the rail price in the denominator.

5. 5.

   Fictional case: a city caps rents below equilibrium while housing supply responds slowly. Evaluate whether the cap alone can improve access for all prospective tenants.

   [4 marks] · no calculator

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. A cheaper posted rent does not guarantee a tenancy. With fixed short-run stock, queues and selection become important. Pairing protection with construction may help later, but a cap alone cannot ensure access for everyone.

   Marking points

   • Indicative: existing tenants who retain homes may pay less.
   • At the cap quantity demanded exceeds quantity supplied, creating shortage.
   • Non-price rationing or reduced maintenance can harm newcomers or quality.
   • A conditional judgement distinguishes protected incumbents from excluded applicants and considers supply measures.

   Examiner tip: Separate affordability for successful tenants from availability for applicants.

6. 6.

   Fictional case: Mira's fuel demand is inelastic initially but households can switch to electric transport over several years. Evaluate using the initial elasticity to forecast long-term revenue from a fuel-price rise.

   [4 marks] · no calculator

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. The initial estimate describes households before they can adjust durable equipment. Long-run revenue could fall if switching makes demand elastic; charging availability determines how quickly this happens. Use a range of future demand responses.

   Marking points

   • Indicative: inelastic short-run demand supports an initial revenue increase.
   • Time enables substitution and replacement of vehicles, increasing responsiveness.
   • Infrastructure or borrowing constraints can delay switching.
   • A justified forecast uses time-specific elasticities and scenarios rather than a fixed initial estimate.

   Examiner tip: Explain the mechanism that changes elasticity over time.

Original, unofficial practice questions from SubjectScout — not official past-paper questions.