Economics 0455 · IGCSE · Price elasticity of demand (PED)
Price elasticity of demand (PED) — practice question
Several producers of jeans compete with one another. They now also have to face new sportswear that is intended to be worn as leisurewear too. As a result, competition has intensified and demand for jeans has become more price-elastic. For example, a government report has estimated that the price elasticity of demand for one of the oldest firm’s jeans in Asia is $-2.5$.
(a)[2]
What does a price elasticity of demand of $-2.5$ tell you?
(b)[4]
Explain the significance of price elasticity of demand for a government.
(c)[6]
Using a demand and supply diagram, analyse the effect of a rise in the price of Firm X’s jeans on the market for Firm Y’s jeans.
(d)[8]
Discuss whether firms that are long-established and widely recognised are likely to be more successful than firms that are new to an industry.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A 1% increase in price leads to a 2.5% decrease in demand” …