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
(a) The price of sweetened drinks increases by 5%. Ceteris paribus, calculate the percentage change in the quantity demanded for sweetened drinks. You are advised to show your working.
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Answer
To calculate the percentage change in the quantity demanded for sweetened drinks, we can use the formula for price elasticity of demand:
Thus, the percentage change in the quantity demanded for sweetened drinks is approximately -6.85%.
Step 2
(b) The price of sweetened drinks increases by 5%. Ceteris paribus, calculate the percentage change in the quantity demanded for bottled water. You are advised to show your working.
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Answer
For bottled water, we use the cross price elasticity of demand formula:
Thus, the percentage change in the quantity demanded for bottled water is approximately 3.15%.
Step 3
(c) Using the data on page 4, which one of the following is most likely?
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Answer
The most likely answer is D.
When the price of sweetened drinks decreases, the demand for bottled water, being a substitute, will also likely increase. Therefore, the most accurate answer is D: Substitutes.
