Economics 0455 · IGCSE · Price elasticity of demand (PED)
Price elasticity of demand (PED) — practice question
The 2014 crop of Arabica beans, which are used to make coffee, was cut by a drought in Brazil in early 2014. Lower output pushed the price of coffee upwards. That higher price affected the quantity of coffee demanded and the demand for its substitutes and complements. Demand for coffee is usually price-inelastic. Any change in the quantity and quality of coffee exports abroad affects Brazil’s current account in the country’s balance of payments.
(a)[2]
Using an example, define ‘complements’.
(b)[4]
Explain two reasons why demand for a product might be price-inelastic.
(c)[6]
Using a demand and supply diagram, analyse the impact of a rise in the price of coffee on the market for tea.
(d)[8]
Discuss whether improving the quality of the coffee that a country produces will lead to a surplus on the current account of its balance of payments.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A pair of products that are used / consumed together” …