The car market and the tyre market are tightly connected. The five biggest tyre companies once accounted for 66% of all tyres. When more than 250 Chinese firms entered, the combined global share of the top five firms fell to below 50%. That also altered the price elasticity of demand (PED) for the tyres sold by individual firms. Some of these firms are state-owned enterprises, while others belong to the private sector.
(a)[2]
Identify two kinds of business organisation that operate in the private sector.
(b)[4]
Explain what effect having more firms making tyres would have on the PED of individual firms’ tyres.
(c)[6]
Analyse, using a demand and supply diagram, the effect of an increase in demand for cars on the market for tyres.
(d)[8]
Discuss whether a large firm will make more profit per unit sold than a small firm.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A sole trader business” …