This set has eleven original questions, ordered from easier to harder, covering all five lessons in elasticity. Questions 1 and 2 check percentage change, 3 to 6 check elasticity values, 7 and 8 check revenue, 9 checks the short run, and 10 and 11 check comparison.
Attempt each question on paper before opening the answer. Show the formula, the substitution and the result, as you would in an exam.
Mark the ones you got wrong, then use the routing list at the end. The mistake log tool helps you track repeats, and the elasticity tutor lets you check your working.
All businesses and towns here are fictional. Check the Cambridge subject page for your exam year, since the list of elasticity measures can differ between years.
Questions
1. A fictional bookshop raises the price of a notebook from RM12 to RM15. Find the percentage change in price.
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(15 − 12) ÷ 12 × 100 = 3 ÷ 12 × 100 = +25%. The base is the original price, RM12.
2. Weekly sales of the notebook fall from 250 to 200. Find the percentage change in quantity.
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(200 − 250) ÷ 250 × 100 = −50 ÷ 250 × 100 = −20%.
3. Using questions 1 and 2, calculate the price elasticity of demand and describe demand.
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PED = −20 ÷ 25 = −0.8. The size is below 1, so demand is inelastic over this range.
4. A price rises by 8% and quantity demanded falls by 12%. Calculate PED and describe demand.
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PED = −12 ÷ 8 = −1.5. The size is above 1, so demand is elastic.
5. In a fictional town, incomes rise by 10%. Demand for restaurant meals rises by 16% and demand for bus rides falls by 3%. Calculate YED for each and name each type of good.
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Restaurant meals: 16 ÷ 10 = +1.6, a normal good with a high response. Bus rides: −3 ÷ 10 = −0.3, an inferior good because demand falls as income rises.
6. A fictional farm sees the price of its eggs rise 12%. Quantity supplied rises 6%. Calculate PES and describe supply.
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PES = 6 ÷ 12 = 0.5. The size is below 1, so supply is inelastic.
7. Ayam Emas, a fictional stall, sells 400 portions at RM15, so revenue is RM6,000. It raises price by 10%. PED is −0.6. Find the new revenue and state the direction.
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New price = RM16.50. Quantity falls 6%: 400 × 0.94 = 376. Revenue = 16.50 × 376 = RM6,204. Revenue rises by RM204, because demand is inelastic.
8. A fictional shop sells 200 items at RM30, so revenue is RM6,000. It cuts price by 10% and PED is −2. Find the new revenue.
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New price = RM27. Quantity rises 20%: 200 × 1.20 = 240. Revenue = 27 × 240 = RM6,480. Revenue rises, because demand is elastic. State the assumption that other factors stay constant.
9. Explain why demand for petrol on a fictional island may be more elastic after three years than after one month.
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In the first month, residents still need to travel and cannot replace vehicles quickly, so quantity demanded falls by a small percentage. Over three years they can buy smaller vehicles, share journeys or use new bus routes, so quantity falls by a larger percentage for the same price rise. Demand therefore may be more elastic in the long run.
10. A price rises from RM20 to RM25 and quantity falls from 100 to 80. Calculate PED using the original base, then using the midpoint method, and say why the values differ.
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Original base: price +25%, quantity −20%, PED = −0.8. Midpoint: price = 5 ÷ 22.5 × 100 ≈ 22.22%, quantity = 20 ÷ 90 × 100 ≈ 22.22%, PED size = 1.0. The values differ because the midpoint method divides by the average of the old and new values, while the original-base method divides by the starting value only.
11. A student writes: “Product A has PED of 0.8 (original base) and Product B has PED of 1.0 (midpoint), so B is more elastic.” Evaluate the claim.
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The claim is not reliable, because the two values use different methods. Question 10 shows the same data can give 0.8 or 1.0 depending on method. Recalculate both products with one method, then compare. Also check that the time periods and price ranges are similar.
If you got these wrong
- Questions 1, 2 or 10: the base or the arithmetic. Revise percentage change and the base.
- Questions 3 to 6: the value or its meaning, including signs. Revise interpreting an elasticity value and sign.
- Questions 7 and 8: the link to revenue or missing assumptions. Revise elasticity and revenue.
- Question 9: a reason without a specific change. Revise short-run and long-run responses.
- Questions 10 and 11: mixing methods. Revise comparing elasticities fairly.
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