Gce Model Questions Vol1 2023 Economics Question 3

Practice essay / theory question 3 from the 2023 Gce Model Questions Vol1 Economics examination. This question covers Elasticity, Price elasticity of demand, Determinants of elasticity, Tax incidence .

Gce Model Questions Vol1 2023 Economics Essay / Theory
Topics: Elasticity Price elasticity of demand Determinants of elasticity Tax incidence
Question 3 GCE_MODEL_QUESTIONS_VOL1 • 2023 • ECONOMICS • essay

The market for bottled drinking water in a Nigerian city is competitive. The following data are observed for a particular brand: - Initial price (P₁): ₦200 per 500‑ml bottle - Initial quantity demanded (Q₁): 500 bottles per day - After a price increase, the new price (P₂): ₦250 per bottle - New quantity demanded (Q₂): 420 bottles per day Assume that the price change is small enough for the midpoint (arc) method to give a reliable estimate of price elasticity of demand. Using this information, answer the questions that follow.

Question Parts

( a )
Calculate the price elasticity of demand for the water using the midpoint method. Show all steps.
( b )
Interpret the magnitude and sign of the elasticity you obtained. What does it imply about the responsiveness of quantity demanded to price changes?
( c )
Identify and briefly explain at least three key determinants that could account for the elasticity you calculated for this good.
( d )
The government is considering imposing a specific tax of ₦30 per bottle on this brand. Assuming the tax is fully passed on to consumers, estimate the percentage change in quantity demanded using the elasticity you calculated, and discuss qualitatively how consumer surplus and government revenue are likely to be affected.

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About This Question

This is Gce Model Questions Vol1 2023 Economics Question 3. It is one of the essay questions from the 2023 Gce Model Questions Vol1 Economics examination.

The question covers Elasticity, Price elasticity of demand, Determinants of elasticity, Tax incidence .

View More Gce Model Questions Vol1 2023 Economics Questions More Gce Model Questions Vol1 Practice Questions Back to Questions

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