1.3 Price determination in a competitive market

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Question 63

An economic study of municipal bus transport ( $B$ ) finds the following:

A 10% increase in train fares ( $P_T$ ) causes the demand for bus journeys ( $Q_B$ ) to rise by 15%.
A 4% increase in average consumer income ( $Y$ ) leads to a 2% decrease in the demand for bus journeys ( $Q_B$ ).
The price elasticity of demand for bus journeys ( $PED_B$ ) is -0.8.

Which one of the following combinations correctly classifies the cross-price relationship with train journeys ( $XED_{BT}$ ), the type of good that bus transport is ( $YED_B$ ), and the price elasticity of demand ( $PED_B$ )?

Relationship: Substitutes ( $XED_{BT} = +1.5$ ); Good type: Inferior ( $YED_B = -0.5$ ); Price elasticity: Inelastic

Relationship: Complements ( $XED_{BT} = -1.5$ ); Good type: Normal ( $YED_B = +0.5$ ); Price elasticity: Elastic

Relationship: Substitutes ( $XED_{BT} = +0.67$ ); Good type: Inferior ( $YED_B = -2.0$ ); Price elasticity: Inelastic

Relationship: Complements ( $XED_{BT} = +1.5$ ); Good type: Normal ( $YED_B = -0.5$ ); Price elasticity: Inelastic

1.3 Price determination in a competitive market

Question 63

An economic study of municipal bus transport ( $B$ ) finds the following:

A 10% increase in train fares ( $P_T$ ) causes the demand for bus journeys ( $Q_B$ ) to rise by 15%.
A 4% increase in average consumer income ( $Y$ ) leads to a 2% decrease in the demand for bus journeys ( $Q_B$ ).
The price elasticity of demand for bus journeys ( $PED_B$ ) is -0.8.

Relationship: Substitutes ( $XED_{BT} = +1.5$ ); Good type: Inferior ( $YED_B = -0.5$ ); Price elasticity: Inelastic

Relationship: Complements ( $XED_{BT} = -1.5$ ); Good type: Normal ( $YED_B = +0.5$ ); Price elasticity: Elastic

Relationship: Substitutes ( $XED_{BT} = +0.67$ ); Good type: Inferior ( $YED_B = -2.0$ ); Price elasticity: Inelastic

Relationship: Complements ( $XED_{BT} = +1.5$ ); Good type: Normal ( $YED_B = -0.5$ ); Price elasticity: Inelastic

1.3 Price determination in a competitive market

Question 63

Markscheme

1.3 Price determination in a competitive market

Question 63

Markscheme

1.3 Price determination in a competitive market

Question 63

1.3 Price determination in a competitive market Questions

1.3 Price determination in a competitive market

Question 63

1.3 Price determination in a competitive market Questions