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The table below shows data on the drinks market in Chile in 2017 - Edexcel - A-Level Economics A - Question 2 - 2022 - Paper 1
Question 2
The table below shows data on the drinks market in Chile in 2017. Price elasticity of demand for sweetened drinks -1.37 Cross price elasticity of demand for bottle... show full transcript
Worked Solution & Example Answer:The table below shows data on the drinks market in Chile in 2017 - Edexcel - A-Level Economics A - Question 2 - 2022 - Paper 1
Step 1
The price of sweetened drinks increases by 5%. Ceteris paribus, calculate the percentage change in the quantity demanded for sweetened drinks.
Answer
To calculate the percentage change in the quantity demanded for sweetened drinks, we can use the formula for price elasticity of demand:
Here, the price elasticity of demand is -1.37 and the percentage change in price is +5%. Hence:
Calculating this gives:
ext{Percentage Change in Quantity Demanded} = -6.85\Therefore, the percentage change in the quantity demanded for sweetened drinks is approximately -6.85%.
Step 2
The price of sweetened drinks increases by 5%. Ceteris paribus, calculate the percentage change in the quantity demanded for bottled water.
Answer
To calculate the percentage change in the quantity demanded for bottled water, we again use the cross price elasticity of demand:
Given that the cross price elasticity is +0.63 and the percentage change in price of sweetened drinks is +5%, we have:
Calculating this yields:
ext{Percentage Change in Quantity Demanded for Bottled Water} = +3.15\Thus, the percentage change in the quantity demanded for bottled water is approximately +3.15%.
Step 3
Using the data on page 4, which one of the following is most likely?
Answer
Based on the information provided, the only correct answer is D: Complements.
This conclusion is drawn from the analysis of the demand characteristics of sweetened drinks and bottled water, where a decrease in the price of sweetened drinks is expected to increase the quantity demanded of bottled water due to their complementary relationship.