Cambridge IGCSE · Economics (0455)

Price elasticity of demand (PED): Practice Questions

5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Price elasticity of demand (PED).

10 questions29 marksFree, no account

Question 1

1 mark

If a \(5\%\) increase in the price of a good leads to a \(10\%\) decrease in the quantity demanded, how is the price elasticity of demand (PED) described?

Question 2

1 mark

A government imposes a high indirect tax on a demerit good that has a price elasticity of demand (PED) of \(0.1\). Which outcome is most likely to occur?

Question 3

1 mark

The price elasticity of demand (PED) for a specific brand of fuel is often found to be lower in the short run than in the long run. What is the primary economic reason for this difference?

Question 4

1 mark

A firm increases the price of its product by \( 10\% \). This leads to a \( 5\% \) fall in the quantity demanded. What is the value of the price elasticity of demand (PED) for this product?

Question 5

1 mark

The price elasticity of demand (PED) for a specific brand of smartphone becomes more price elastic over a period of two years. What is the most likely reason for this change?

Question 6

2 marks

Define the term price elasticity of demand (PED) and state the formula used to calculate its value.

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Question 7

4 marks

A firm faces a price elasticity of demand (PED) of \(-2.0\) for its luxury perfume.
If the firm decides to decrease the price of the perfume by \(10\%\), explain the likely effect on the firm's total revenue.

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Question 8

5 marks

A government imposes a specific indirect tax on a good that has a perfectly inelastic demand curve.
Explain the impact of this tax on the equilibrium price and determine whether the tax burden falls mostly on the consumer or the producer.

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Question 9

8 marks

A government intends to reduce the consumption of tobacco products by imposing a higher indirect tax.
Explain how Price Elasticity of Demand (PED) determines the effectiveness of this tax policy in terms of both social welfare and government tax revenue.
Discuss whether you would expect the demand for tobacco products to be price elastic or price inelastic, justifying your answer with reference to addiction and the proportion of income spent.

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Question 10

5 marks

Identify and explain two determinants of the Price Elasticity of Demand (PED).
Analyze the relationship between PED and a firm's total revenue when the firm decides to increase the price of a product that has many close substitutes.

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