In the UK, bus trips outside London have declined by almost 40% since 1980. The drop in demand has mainly been caused by higher bus fares, rising incomes and shifts in the price and quality of substitutes. On some routes there are monopolies in operation, and this absence of competition can drive up the price.
(a)[2]
Define a substitute, then give an example.
(b)[4]
Explain two advantages a firm may obtain from operating as a monopoly.
(c)[6]
Analyse the effect of a product's price elasticity of demand on the revenue a firm earns.
(d)[8]
Discuss whether or not a government ought to subsidise bus transport.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A product that can replace another one” …