CCEA A Level Economics
CCEA A Level Economics AS 1 Elasticity of Demand and Supply Exam Questions
Free CCEA A Level Economics revision for AS 1 Elasticity of Demand and Supply: what you need to know, common mistakes and exam-style questions with answers. Covers price, income and cross elasticity of demand, price elasticity of supply, total revenue and classifying goods.
Practise AS 1 Elasticity of Demand and Supply with past papers
Once you have learnt this topic, find the AS 1 Elasticity of Demand and Supply questions in real CCEA A Level Economics past papers and mark them with the mark scheme. Doing lots of real questions is the quickest way to learn how examiners ask about each idea.
About CCEA A Level Economics AS 1 Elasticity of Demand and Supply
Elasticity of demand and supply is a key analytical tool in Unit AS 1: Markets and Market Failure. You need to calculate and interpret price elasticity of demand, income elasticity, cross elasticity and price elasticity of supply, and explain what determines each. You also need to link price elasticity of demand to total revenue, and use income and cross elasticity to classify goods as normal, inferior, luxuries, substitutes or complements. Elasticity then feeds into tax incidence, pricing decisions and government intervention. CCEA papers regularly include short calculation questions with interpretation, plus evaluation of how a firm or government could use elasticity estimates.
What you need to know
- Price elasticity of demand (PED) PED = % change in quantity demanded / % change in price. Values between 0 and -1 are inelastic, below -1 elastic; perfectly inelastic is 0, unit elastic is -1.
- Determinants of PED Number and closeness of substitutes, proportion of income spent, whether the good is a necessity or habit-forming, time period and how widely the market is defined.
- PED and total revenue When demand is price inelastic, a price rise increases total revenue; when demand is price elastic, a price rise decreases total revenue. Total revenue is maximised where PED is unitary.
- Income elasticity of demand (YED) YED = % change in quantity demanded / % change in income. Positive for normal goods (above 1 for luxuries), negative for inferior goods.
- Cross elasticity of demand (XED) XED = % change in quantity demanded of good A / % change in price of good B. Positive for substitutes, negative for complements, close to zero for unrelated goods.
- Price elasticity of supply (PES) PES = % change in quantity supplied / % change in price. Determined by spare capacity, stocks, ease of switching factors and time period; supply is more elastic in the long run.
Common mistakes in AS 1 Elasticity of Demand and Supply
- Inverting the formula so price is on top; quantity change is always the numerator.
- Leaving out the sign for YED or XED; the sign is what tells you the type of good.
- Describing inelastic demand as demand that does not change; it changes proportionately less than price.
- Linking elasticity to the slope of a straight-line demand curve; elasticity varies along a linear demand curve.
- Calculating a value without interpreting it; most marks come from saying what the number means.
Try three AS 1 Elasticity of Demand and Supply exam-style questions
1. The price of a product rises from £4.00 to £5.00 and quantity demanded falls from 200 to 170 units. Calculate the PED and comment on the result. (4 marks)
Show the mark scheme answer
% change in price = +25%; % change in quantity = -15%; PED = -15/25 = -0.6; demand is price inelastic so total revenue rises (from £800 to £850).
2. A 10% rise in incomes leads to a 4% fall in demand for a good. Calculate YED and state what type of good it is. (2 marks)
Show the mark scheme answer
YED = -4/10 = -0.4; negative, so it is an inferior good.
3. Explain two factors that determine the price elasticity of supply of a product. (4 marks)
Show the mark scheme answer
Spare capacity: firms with unused capacity can raise output quickly, making supply more elastic; time period: in the short run factors are fixed so supply is inelastic, in the long run firms can expand so supply becomes more elastic; (or) stock levels and ease of switching factors.
AS 1 Elasticity of Demand and Supply FAQs
What does CCEA A Level Economics AS 1 Elasticity of Demand and Supply cover?
Price, income and cross elasticity of demand, price elasticity of supply, their determinants, the link between PED and total revenue, and classifying goods using elasticity values.
Which unit is this topic examined in?
It is in Unit AS 1: Markets and Market Failure, a 1 hour 30 minute paper with short-answer questions, a case study and an extended response question.
Which elasticity formulas do I need?
PED, YED, XED and PES, each as a percentage change in quantity divided by a percentage change in price or income. Learn what the size and sign of each value tells you.
