A-Level Edexcel Economics A How Markets Work: The table shows market data for

Question

The table shows market data for e-cigarette kits. The original equilibrium price is £23.

| Price £ | Quantity demanded per month (000) | Quantity supplied per month (000) | New quantity demanded per month (000) | New Quantity supplied per month (000) |
|---------|-----------------------------------|-----------------------------------|-----------------------------------------|---------------------------------------|
| 25      | 5                                 | 9                                 | 8                                       | 10                                    |
| 24      | 6                                 | 8                                 | 9                                       | 8                                     |
| 23      | 7                                 | 7                                 | 10                                      | 7                                     |
| 22      | 8                                 | 6                                 | 11                                      | 6                                     |
| 21      | 9                                 | 5                                 | 12                                      | 6                                     |

As a result of a successful advertising campaign, demand increased by 3000 e-cigarette kits at all prices. At the same time production costs fell leading to an increase in supply of 1000 e-cigarette kits at all prices.

(a) Calculate the new equilibrium price and quantity following the successful advertising campaign and the fall in production costs. Use the last two columns for your working.

(b) Research conducted in New Zealand in 2014 estimated the cross elasticity of demand for e-cigarettes to be 0.16 in response to changes in the price of tobacco. This implies that a 5% increase in the price of tobacco will cause the percentage change in demand for e-cigarettes to be:

The table shows market data for e-cigarette kits - Edexcel - A-Level Economics A - Question 1 - 2017 - Paper 1

Worked Solution & Example Answer:The table shows market data for e-cigarette kits - Edexcel - A-Level Economics A - Question 1 - 2017 - Paper 1

Calculate the new equilibrium price and quantity following the successful advertising campaign and the fall in production costs.

Research conducted in New Zealand in 2014 estimated the cross elasticity of demand for e-cigarettes to be 0.16 in response to changes in the price of tobacco.

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