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ARHOLIADAU EXAMINATIONS
Ionawr 2010 January 2010
EC10510 ECONOMIC PRINCIPLES 1
Time allowed: TWO hours
Answer QUESTION 1 from Section A, and any ONE question from Section B.
Casio FX83ES/FX85ES calculators only may be used.
Section A
Question 1
a) Provide definitions for and explanations of:
i) Price elasticity of demand;
ii) Income elasticity of demand. (9 marks)
b) Use the Mid-Point Method to calculate an approximate measure of price elasticity of
demand for the case of a greengrocer’s shop selling tomatoes, where at a price of £1.40
per kilogram the amount sold weekly is 850 kilograms, and at a price of £1.50 the
amount sold weekly is 800 kilograms. Are tomatoes in this instance elastic or inelastic in
demand with relation to price? (15 marks)
c) Explain and illustrate what is meant by normal, inferior and Giffen goods. (14 marks)
d) Provide examples of complements and substitutes, and explain how you would expect
such pairs of goods to be related in terms of cross-price elasticity of demand. (12 marks)
(Total 50 marks)
SECTION B
Question 2.
Britain now has some of the highest taxes on petrol in Europe. Examine the impact on
consumer demand for car, bus, and train travel of a further increase in the costs of
motoring. In your answer, you should make use of various elasticity concepts. (50 marks)
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