Economics 9708 · AS & A Level · Cross elasticity of demand
Cross elasticity of demand — practice question
(a)[8]
Using diagram(s), explain what is meant by consumer surplus and producer surplus and assess whether a rise in the price of a product caused by higher costs of production is likely always to reduce consumer surplus.
(b)[12]
A government wants to keep the price of an essential food, such as rice, affordable so as to support low-income households.
Assess whether a policy of fixing the maximum price for an essential food is likely to be more effective than a policy of making transfer payments to low-income households.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “AO1 Knowledge and Understanding (max 3 marks): clear understanding of consumer surplus i.e., the difference between the price a consumer is willing to pay for a product and its market price (1); clear understanding of producer surplus i.e., the difference between the price a producer is willing to accept and what is actually paid (1); both clearly indicated on an accurately labelled diagram(s) (1).” …