Waec Model Questions Vol1 2021 Economics Question 3

Practice essay / theory question 3 from the 2021 Waec Model Questions Vol1 Economics examination. This question covers Elasticity .

Waec Model Questions Vol1 2021 Economics Essay / Theory
Topic: Elasticity
Question 3 WAEC_MODEL_QUESTIONS_VOL1 • 2021 • ECONOMICS • essay

A small manufacturing firm produces hand‑crafted wooden chairs. The following information is available for a recent period. - Initial price per chair: ₦20,000 - Quantity sold at the initial price: 500 chairs - After a market‑wide price increase, the price rose to ₦22,000 and quantity sold fell to 460 chairs. Using this data, answer the questions that follow.

Question Parts

( a )
Calculate the price elasticity of demand (PED) using the midpoint (arc) method. Show all steps of your calculation.
( b )
Based on the calculated elasticity, state whether demand is elastic, inelastic or unit‑elastic and explain what this implies for the firm’s total revenue when price changes.
( c )
The government is considering imposing a specific tax of ₦2,000 per chair on the firm. Assuming the tax is fully passed on to consumers, estimate the new price, the expected percentage change in quantity demanded using the previously calculated elasticity, and discuss the likely impact on the firm’s total revenue and on the distribution of the tax burden between consumers and the firm.
( d )
Suggest two pricing strategies the firm could adopt in response to the elasticity of its product, justifying each strategy with reference to the elasticity concept.

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About This Question

This is Waec Model Questions Vol1 2021 Economics Question 3. It is one of the essay questions from the 2021 Waec Model Questions Vol1 Economics examination.

The question covers Elasticity .

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