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8 marksTheory of Consumer Demand

CAPE Economics Unit 1 · 2014 · Paper 2 · Question 2(a)(ii)

ABC Company Ltd manufactures genuine cow leather and increases its unit price to remain viable. When unit price increases from 9 to 10, quantity demanded falls from 150 units to 110 units.

Calculate the price elasticity of demand using the arc method and interpret the results.

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Other parts of this question

  1. 2(a)(i)List THREE determinants of price elasticity of demand.[3 marks]
  2. 2(b)(i)Sketch and label the demand curve faced by ABC Company Ltd, indicating total revenue before and after the price change.[4 marks]
  3. 2(b)(ii)Advise ABC Company Ltd on a pricing decision that is in its best interest, justifying your answer.[3 marks]
  4. 2(c)(i)Define the term 'consumer surplus'.[2 marks]
  5. 2(c)(ii)The government imposes an effective price floor in the cow leather market. Using a well-labelled diagram, illustrate consumer surplus after the price floor is…[5 marks]

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