EDEXCEL ECONOMICS A LEVEL PAPER 3 EXAM
QUESTIONS AND ANSWERS 100% CORRECT!
,Demand - ANSWER The quantity of a good/service that consumers are willing and able
to buy at a given price in a given time period.
Factors shifting demand curve - ANSWER P opulation
A dvertisement
S ubstitutes
I ncome
F ashion/trends
I nterest rates
C omplements
PED - ANSWER How responsive QD is to a change in price.
% change in QD / % change in price.
% change calculation - ANSWER change/original * 100
change = new - original
PED values + meanings - ANSWER = 0: perfectly inelastic
= 1: unit elastic
< 1: inelastic demand
> 1: elastic demand
= infinity: perfectly elastic
Factors of PED + explain - ANSWER S ubstitutes (more substitutes = more elastic)
P ercentage of income (higher % of income = elastic)
L uxury/necessity (luxury = elastic, necessity = inelastic)
A ddictive (addictive = inelastic)
T ime period (LR = elastic)
PED and TR relation - ANSWER PED = elastic:
- if price increases, TR decreases.
- if price decreases, TR increases.
PED = inelastic:
- if price increases, TR increases.
- if price decreases, TR decreases.
, XED - ANSWER Measures the responsiveness of a change in quantity demand of good
A to a change in price of good B.
% change in QD of A / % change in price of B.
XED = + - ANSWER Goods A and B are substitutes:
> 1: elastic (close substitutes)
<1: inelastic (weak substitutes)
XED = - - ANSWER Goods A and B are complements:
> 1: elastic (close complements)
< 1: inelastic (weak complements)
XED = 0 - ANSWER Unrelated goods.
Elasticity of demand + indirect tax - ANSWER Demand = elastic:
Indirect tax = effective.
Demand will be very responsive (large decrease).
Demand = inelastic
Indirect tax = less effective.
Demand won't be very responsive (slight decrease).
e.g: tax on cigs (addictive = inelastic).
Elasticity of demand + subsidies - ANSWER Demand = elastic:
Subsidies = effective.
Large increase in demand.
Demand = inelastic:
Subsidies = less effective.
Small increase in demand.
Explain how businesses use PED - ANSWER - To maximise TR.
- Employment.
- Stocks.
- Output.
Explain how businesses use YED - ANSWER - Pricing decisions.
- Employment.
- Stocks.
- Output.
QUESTIONS AND ANSWERS 100% CORRECT!
,Demand - ANSWER The quantity of a good/service that consumers are willing and able
to buy at a given price in a given time period.
Factors shifting demand curve - ANSWER P opulation
A dvertisement
S ubstitutes
I ncome
F ashion/trends
I nterest rates
C omplements
PED - ANSWER How responsive QD is to a change in price.
% change in QD / % change in price.
% change calculation - ANSWER change/original * 100
change = new - original
PED values + meanings - ANSWER = 0: perfectly inelastic
= 1: unit elastic
< 1: inelastic demand
> 1: elastic demand
= infinity: perfectly elastic
Factors of PED + explain - ANSWER S ubstitutes (more substitutes = more elastic)
P ercentage of income (higher % of income = elastic)
L uxury/necessity (luxury = elastic, necessity = inelastic)
A ddictive (addictive = inelastic)
T ime period (LR = elastic)
PED and TR relation - ANSWER PED = elastic:
- if price increases, TR decreases.
- if price decreases, TR increases.
PED = inelastic:
- if price increases, TR increases.
- if price decreases, TR decreases.
, XED - ANSWER Measures the responsiveness of a change in quantity demand of good
A to a change in price of good B.
% change in QD of A / % change in price of B.
XED = + - ANSWER Goods A and B are substitutes:
> 1: elastic (close substitutes)
<1: inelastic (weak substitutes)
XED = - - ANSWER Goods A and B are complements:
> 1: elastic (close complements)
< 1: inelastic (weak complements)
XED = 0 - ANSWER Unrelated goods.
Elasticity of demand + indirect tax - ANSWER Demand = elastic:
Indirect tax = effective.
Demand will be very responsive (large decrease).
Demand = inelastic
Indirect tax = less effective.
Demand won't be very responsive (slight decrease).
e.g: tax on cigs (addictive = inelastic).
Elasticity of demand + subsidies - ANSWER Demand = elastic:
Subsidies = effective.
Large increase in demand.
Demand = inelastic:
Subsidies = less effective.
Small increase in demand.
Explain how businesses use PED - ANSWER - To maximise TR.
- Employment.
- Stocks.
- Output.
Explain how businesses use YED - ANSWER - Pricing decisions.
- Employment.
- Stocks.
- Output.
