Economics 2281 · O Level · Price elasticity of demand (PED)
Price elasticity of demand (PED) — practice question
Food choices can be influenced by taxes, subsidies and health reports. A report issued in 2017 set out the health benefits of eating tomatoes, including improved vision and a lower risk of heart disease. Egypt is a major tomato producer and it also makes a large quantity of cement. Cement is a product with price-inelastic demand. Egyptian cement producers have adopted more capital-intensive production methods.
(a)[2]
Identify how a tax differs from a subsidy.
(b)[4]
Explain two reasons that can make demand for a product price-inelastic.
(c)[6]
Analyse, using a demand and supply diagram, the effect on the market for tomatoes of a report saying that eating tomatoes is good for health.
(d)[8]
Discuss whether introducing more capital-intensive production methods will or will not increase 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 a payment made to the government, whereas a subsidy is a grant from the government.” …