Economics 2281 · O Level · Price elasticity of demand (PED)
Price elasticity of demand (PED) — practice question
Several producers compete in the jeans market. They are also now up against new sportswear that has been designed so it can be used as leisurewear too. As competition has intensified, demand for jeans has become more price-elastic. For example, a government report estimated the price elasticity of demand for one of the oldest firm's jeans in Asia at $-2.5$.
(a)[2]
What does a price elasticity of demand of $-2.5$ indicate?
(b)[4]
Explain why price elasticity of demand matters to a government.
(c)[6]
Using a demand and supply diagram, analyse the effect of an increase 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 businesses that are new to an industry.
Worked solution & mark scheme
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