Cambridge International as and a level Economics Ebook

1 
Consider the factors that have contributed to rising 
food prices. Split these into demand factors and 
supply factors.
2 
Using a demand and supply diagram, explain how 
the following factors have aff ected the market for 
food crops:
a
the increased demand for crops for biofuel
b
the increased consumption of meat in China 
and India.
3 
Th
e government of Sierra Leone has announced that 
it would start to produce its own rice, rather than 
rely on imports, from 2009. How might this aff ect 
the price of rice in Sierra Leone and on the global 
market?
65
Chapter 2: The price system and the microeconomy 

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Exam-style questions
1
a
Explain how an equilibrium price for a product is 
established in the market and how it may change. 
[8]
b
Discuss whether a firm’s revenue would increase 
in response to price and income changes if the 
price elasticity of demand for its product became 
highly elastic. 
[12]
Source: 
Cambridge International AS and A Level Economics 9708 
Paper 2 Q2 October/November 2007.
2
Market research has produced the following estimates 
of cross elasticity of demand.
Branded cola and branded iced tea 
+
1.5
Branded cola and own label cola 
+
0.5
a
Explain what these estimates mean and their 
business significance for sales of branded cola 
when the price of branded iced tea and own label 
cola increase by 20%. 
[8]
b
Using diagrams, explain how the market is likely 
to be aff ected by:
i
A substantial cut in the price of branded ice tea.