Economics 2281 · O Level · Price elasticity of demand (PED)
Price elasticity of demand (PED) — practice question
In most countries, the price elasticity of demand (PED) for sugar is below 1. During 2017, sugar prices decreased. Even so, the decline was smaller for specialised, higher quality sugar produced in places such as Mauritius than for the average world price. Efficient producers, including some farmers in Brazil with low fixed costs of production, were also less heavily affected by the price drop.
(a)[2]
State the formula that is used to calculate PED.
(b)[4]
Explain two reasons why the price of sugar might fall.
(c)[6]
Analyse the likely reasons why a producer’s fixed cost could rise.
(d)[8]
Discuss whether or not a country will gain from specialising in an agricultural product such as sugar.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.