Economics 2281 · O Level · Price elasticity of demand (PED)
Price elasticity of demand (PED) — practice question
In the UK, bus trips outside London have dropped by almost 40% since 1980. This weakening in demand has mainly resulted from higher bus fares, rising incomes, and shifts in the price and quality of substitute products. On certain routes, monopolies operate, and the absence of competition can drive the price up.
(a)[2]
Define a substitute, then give one example.
(b)[4]
Explain two advantages that a firm may obtain by being a monopoly.
(c)[6]
Analyse how the price elasticity of demand for a product affects the revenue a firm receives.
(d)[8]
Discuss whether bus transport ought to receive government subsidies.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A competing product that may be used instead of a different one” …