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IB Economics HL 2.5 Elasticities of Demand Question Bank

Evaluate demand elasticities using calculations, assumptions and evidence to explain revenue, market relationships and policy effects.

Syllabus
First assessment 2022
Course
Economics HL
Level
HL

Exam points

  • Calculate and interpret PED or YED from data, then explain the demand or revenue result.
  • Analyse PED along a straight-line demand curve and compare primary commodities with manufactures.
  • Evaluate how YED predicts firm demand and changes in the sectoral structure of an economy.

Covered syllabus points

2.5.1—Concept of elasticity2.5.2—Price elasticity of demand2.5.3—PED diagrams and revenue2.5.4 (HL)—PED along a straight-line demand curve2.5.5—Determinants and importance of PED2.5.6 (HL)—PED for primary commodities2.5.7—Income elasticity of demand2.5.8 (HL)—Importance of YED

2.5 Elasticities of demand question 1

[Maximum number: 8]

Figure 1 illustrates the production possibilities for rice and pencils in Country H. Resources in Country H are fully employed.

Figure 1

Figure 1

Question (a)

(a)

Table 1 provides information about Good X and Good Y, which are related goods.

Table 1

Table 1

Using Table 1, calculate the cross price elasticity of demand between Good X and Good Y when the price of Good X increases.

The demand for Good Z is income inelastic.

[ 2 ]

Question (b)

(b)

Define the term income inelastic demand.

Country D is an economically less developed country that specializes in the production of primary products.

[ 2 ]

Question (c)

(c)

Explain two implications for Country D of a relatively low income elasticity of demand for its primary products.
Good A and Good B are in joint supply.

[ 4 ]

2.5 Elasticities of demand question 2

[Maximum number: 5]

Question (a)

(a)

Using the data in Table 2, calculate the price elasticity of demand for European seabass following the change in price from 2017 to 2018.

[ 3 ]

Question (b)

(b)

Using the data in Table 1 and Table 2, calculate the income elasticity of demand for European seabass when per capita incomes in Portugal changed from 2017 to 2018.

Fisheries in the open sea are considered an example of a common pool resource. According to the World Bank almost 90 % of global marine fish stocks are now either fully exploited or overfished. Today, each person eats on average 19.2 kg of fish a year - around twice as much as 50 years ago.

The government of a small island nation decides to impose a tax on pollock, the top fish catch in the world, in an attempt to limit overfishing.

Figure 1 illustrates the domestic pollock market, where S is the domestic supply, S t is the domestic supply after the tax is imposed, D is the domestic demand, MPB is the marginal private benefit and MSB is the marginal social benefit.

Figure 1

Figure 1

[ 2 ]

2.5 Elasticities of demand question 3

[Maximum number: 6]

Note that widgets and pidgets are imaginary products.

In the country of Burbia, the demand and supply of widgets are given by the functions

Qd=249−4PQs=150+14P\begin{aligned} & Q d=249-4 P \\ & Q s=150+14 P \end{aligned}

where Qd is the quantity demanded per month, Qs is the quantity supplied per month and P is the price per widget in dollars ($).

Question (a)

(a)

Outline the meaning of the term unit elastic demand.

[ 2 ]

Question (b)

(b)

Explain two determinants of the price elasticity of demand (PED).

[ 4 ]
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