Economics 0455 · IGCSE · Price elasticity of demand (PED)
Price elasticity of demand (PED) — practice question
What people choose to purchase as food may be affected by taxes, subsidies and health reports. A report issued in 2017 described the health advantages of eating tomatoes, such as better vision and a lower risk of heart disease. Egypt is a significant producer of tomatoes and it also makes a very large amount of cement. Cement is a product with price-inelastic demand. Cement producers in Egypt have adopted production methods that are more capital-intensive.
(a)[2]
State the distinction between a tax and a subsidy.
(b)[4]
Explain two reasons why demand for a product may be price-inelastic.
(c)[6]
Analyse, using a demand and supply diagram, the effect that a report saying eating tomatoes is good for health will have on the tomato market.
(d)[8]
Discuss whether introducing more capital-intensive production methods will raise a firm’s profits.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A tax is money paid to the government; a subsidy is money given by the government” …