Elasticities of demand

Table 1 shows the price of a packet of peanuts and the number of packets of cashew nuts sold in a shop in one month. The price of a packet of cashew nuts is unchanged.

When the price of a packet of peanuts rises from £0.80 to £0.84, the cross elasticity of demand for cashew nuts with respect to the price of peanuts is

Explain possible reasons for fluctuations in the world market price of tea.

Figure 3 shows the demand curve for a firm’s scarves.

Which one of the following statements is true when the price of scarves is reduced from £30 to £25?

Explain how the concept of cross elasticity of demand can be used to understand the relationship between markets.

A monopolistically competitive firm’s demand curve for good X has a price elasticity of demand of minus 1.0 throughout its entire range. All other things being equal, which one of the following is most likely to result in an increase in the firm’s profits?

Figure 4 shows a firm’s demand (D) curve and its marginal revenue (MR) curve for good X. The firm initially sells OQ 1 units of X per day at a price of OP 1.

If the firm increases its price by 10%

The diagram below shows the market demand (D) curve and two supply (S₁ and S₂) curves for a brand of soft drink. The drink is a demerit good because of its high sugar content. The government imposes an indirect tax on each can sold that cuts consumption by 100 000 cans per week.

If the price elasticity of demand for the drink is –2.0, the price must have increased by

The price of good Y, a substitute for good X, rises from 75p to £1. As a result, the quantity of demand for good X rises from 3 million units to 5 million units per month.

What is the value of the cross elasticity of demand for good X with respect to good Y?

At the initial market equilibrium, the income elasticity of demand for fresh chickens is +1.5, and the price elasticity of supply is +1.0. Then there is a 5% increase in consumers’ income.

Which one of the following combinations, A, B, C or D, is most likely to show the changes in the market equilibrium price and quantity?

After considering Extract E, and the original evidence in Extracts A, B, C and D, would you recommend to the members of OPEC that they continue to restrict the supply of oil to try to raise the world market price of oil? Justify your recommendation.

The price elasticity of demand for games consoles is -1.2. It can be concluded that

Turn over for Section B

sector.