1.

Using diagrams, explain how the incidence of tax may be affected by the
price elasticity of demand?
Definition of indirect tax, price elasticity of demand, and incidence of taxation
Theory of haw relative price elasticities influence the proportionate sharing of an
indirect tax between producers and consumers
Diagrams to show incidence of an indirect tax on consumers and producers with
elastic and inelastic demand curves
Examples of goods with differing PEDs and resulting differences in their incidence
of taxation.

2. Explain why the PED of demand for primary commodities tends to be

relatively low while the PED for manufactured goods tends to be
relatively high?
Definition of PED, primary commodities and manufactured products
Application of theory of PED to primary and manufactured commodities,
explaining high and low PED, including reference to factors that determine the
PED of primary products and of manufactured products, eg, degree of necessity
and availability of substitutes.
Diagrams to show the different degrees of PED
Examples of primary commodities and manufactured products to which this might
be or has been applied.

3. “The income elasticity of demand for primary products tends to be

lower than that for manufactured products and services.” Examine the
implications of this for producers and for the economy as a whole.
Definitions of income elasticity of demand, primary products and manufactured
products; explanation of low YED.
Application of theory of income elasticity of demand to primary products,
manufactured goods and services; distinction between income inelastic and income
elastic goods and services in relation to primary products and manufactured goods
and services.
Diagrams to show the possible impact on demand with appropriate explanation.
Examples of goods with different YED; perhaps related to ELDCs and ELDCs.
Examination: consideration of different implications for producers in terms of rate
of expansion of industries and hence future profitability; the implications for
resource allocation; the implications for relative growth of economy; the different
effects for ELDCs and EMDCs; an evaluation of the significance of YED of
demand for firms and economies as a whole.

4. Explain the factors which might affect the XED of demand between
different products.
Definition of XED
Theory to include Explanation of formula, significance of positive and negative co-
efficient of XED. Emphasis is likely to be on Complements and substitutes.
Diagrams to show markets where the change in price of one good influences the
demand for another good positively (substitutes) or negatively (complements).
Examples of substitutes, complements and unrelated goods.

5. Using a price ceiling diagram, analyze the impact a maximum price

might have on the market for food.
Definitions of price ceiling or maximum price.
An anlaysis of the possible impacts of a price ceiling. Shortages, inefficient,
resource allocation, welfare impacts underground paralle markets and non-price
rationing. A consideration of impacts on the stakeholders.
Diagram of a market supply and demand diagram showing a maximum price as
specified in the question.
Examples of markets where such price controls have been used or might be used in
hypothetical situations.
 6. Discuss the policies a government might use to make food more
affordable to the low income groups.
Definitions of identified policies and subsidies.
Explanation of the use of subsidies, state provision of basic food stuff and price
controls. Diagrams to illustrate intervention, such as the use of subsidies and price
ceilings.
Examples of application of policies.
Evaluation: Consideration of advantages and disadvantages of the selected
policies, impacts on stakeholders, short term and long term consequences.

7. Examine the role of PED for firms making decisions regarding

price changes and their effect on total revenue. [15 marks] 
 
Definition of total revenue.
 
Explanation of the law of demand and of the relationship between a change
in price and the effect on total revenue and how the latter is dependent on
PED. Explanation of why a good with price elastic demand would witness a
decrease/increase in total revenue as a result of a price increase/decrease.
Explanation of why a good with price inelastic demand would witness an
increase/decrease in total revenue as a result of a price increase/decrease.
 
Diagrams showing the effect of a price change on total revenue depending
on the price elasticity of demand.

Examples of firms making decisions to change price and the effect on their
total revenue depending on the PED of good/service offered. 

To examine may include: the effect on revenue of price changes, a

consideration of other factors which may affect revenue other than price.
PED is difficult to judge, it changes over time – once price changes the
PED changes. Reference to factors other than price, which influence
demand. 
 8. Using diagrams, explain how a change in one of the determinants of demand
might increase the price of rice and how a change in one of the determinants
of supply might decrease the price of rice. [10 marks] 

Definitions of demand and supply 

Diagrams to show the impact of changes in the determinants of demand and
supply on the price of rice 
An explanation of how a new price of rice would result from an increase in
supply and increase in demand, with reference to the specific determinants 
Examples of situations where such changes have taken place. 

9. Discuss the consequences of providing a subsidy on the

production of rice for producers, consumers and the government.
[15 marks] 

Answers may include: 

Definition of a subsidy 
Diagram of the application of a subsidy and its consequences for the
various stakeholders 
An explanation of the impact on producers (increased revenues), consumers
(lower prices) and government (increased expenditure) 
Examples of situations where a subsidy has been introduced 
Synthesis or evaluation (discuss). 

Command term “Discuss” requires candidates to offer a considered and

balanced review that includes a range of arguments, factors or hypotheses. 

Discussion may include: a consideration of the effect of the subsidy on

various stakeholders. The likely price inelasticity of demand for rice and
proportionate benefits to consumers and producers may be considered. 

10.Explain why governments impose indirect taxes.

Definition of indirect tax. Explanation of possible reasons for the application of
indirect taxes, to collect revenue, to correct externalities or discourage the
consumption of demerit goods.
A diagram showing the application of an indirect tax.
Examples of the use of indirect tax.