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1.3 Price determination in a competitive market

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Question 52

A market research firm observes the following changes in the hot beverage market:

  • A 15% increase in the price of Premium Coffee leads to a 6% decrease in the quantity demanded of Oat Milk.
  • An 8% increase in average consumer real income leads to a 4% decrease in the quantity demanded of Instant Coffee.

Which one of the following statements is correct?

A

Premium Coffee and Oat Milk are substitutes with a cross elasticity of demand of +0.4+0.4+0.4, and Instant Coffee is an inferior good with an income elasticity of demand of −0.5-0.5−0.5.

B

Premium Coffee and Oat Milk are complements with a cross elasticity of demand of −0.4-0.4−0.4, and Instant Coffee is an inferior good with an income elasticity of demand of −0.5-0.5−0.5.

C

Premium Coffee and Oat Milk are complements with a cross elasticity of demand of −2.5-2.5−2.5, and Instant Coffee is an inferior good with an income elasticity of demand of −2.0-2.0−2.0.

D

Premium Coffee and Oat Milk are complements with a cross elasticity of demand of −0.4-0.4−0.4, and Instant Coffee is a normal good with an income elasticity of demand of +0.5+0.5+0.5.

Markscheme

1.3 Price determination in a competitive market Questions

  1. A Level
  2. /Economics
  3. /1.3 Price determination in a competitive market

256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.

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