CAIE IGCSE Economics 2.6.5 Significance of Ped Questions
Practise Cambridge IGCSE Economics by applying price elasticity of demand to business pricing and government policy decisions.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- Apply price elasticity of demand to a firm’s pricing decisions.
- Explain how PED informs government tax, employment and policy analysis.
- Evaluate the usefulness and limitations of PED for firms and governments.
CAIE IGCSE Economics 2.6.5 Significance of Ped Questions question 1
[Maximum number: 6]
Some markets in Belgium are in equilibrium. The country produces a wide range of goods and services with different degrees of price elasticity of demand. The Belgian Government wants the economy to move to a production possibility point beyond its current production possibility curve (PPC). Belgium's scientific industry is one industry which is doing well. Workers in this industry are highly specialised.
Analyse how price elasticity of demand can influence a firm's pricing decisions.
Analyse how price elasticity of demand can influence a firm's pricing decisions.
Coherent analysis which might include the following.
Price elasticity of demand is a measure of the responsiveness of demand to a change in price (1).
If demand is elastic, a rise in price will cause a greater percentage change in demand (1) may indicate the firm's product has close substitutes / is not a necessity / takes a significant proportion of consumers' incomes (1) may encourage firms to lower price (1) raise revenue (1).
If demand is inelastic, a rise in price will cause a smaller percentage change in demand (1) may indicate the firm's product has few substitutes / is a necessity / takes a small proportion of consumers' incomes (1) may encourage firms to raise prices (1) revenue would increase (1).
6
Reward, but do not expect:
Facilitate price discrimination (1) charging higher prices in markets with inelastic demand (1) valid example, e.g. higher rail fares at peak times (1).
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