ANSWERS
(3)
(a)
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price, while income elasticity of demand measures the responsiveness of quantity demanded to a change in income.
(b)
(i) The government can use price elasticity of demand to determine the impact of taxes or subsidies on consumer behavior and make informed decisions about how to regulate markets.
(ii) A monopolist can use price elasticity of demand to determine the optimal pricing strategy and maximize profits.
(iii) Price elasticity of demand is relevant to the devaluation of currency as it affects exports because it helps determine how changes in prices will affect the quantity of exports.
(iv) A trade union’s agitation for wage increases can use price elasticity of demand to gauge the impact of wage increases on consumer demand and determine the potential effects on employment and output.
THEORY QUESTIONS
