Household water use in Lydora

Read the extracts and answer the questions that follow.

Text A — Drought pricing

1. Lydora’s water authority increased the price of piped water during a drought. Household consumption decreased only slightly. Water used for drinking, cooking and sanitation is a necessity, and many households have no close substitute for the public supply.

2. The government wants to reduce consumption rather than simply raise revenue. Environmental groups argue that taxation should be combined with information, water-saving devices and support for rainwater collection.

Text B — Premium bottled water

1. Higher-income households have increased purchases of imported premium bottled water. Its demand appears to have a high positive income elasticity of demand (YED).

2. Low-income households spend a larger proportion of income on water than wealthy households. Consumer groups therefore argue that further price increases could be inequitable even if demand remains price inelastic.

Table 1 — Piped-water price and consumption

Piped-water price and monthly household consumption in Lydora.

Table 2 — Income and premium bottled-water purchases

Average monthly household income and premium bottled-water purchases in Lydora.

Football pricing in Estara

Read the extracts and answer the questions that follow.

Text A — League matches

1. Estara United increased the price of standard match tickets after several successful seasons. Attendance decreased by a smaller percentage than the ticket price increased. Many long-term supporters view attendance as habit-forming and have relatively price-inelastic demand.

2. The stadium has limited capacity. Club managers argue that higher prices could increase revenue without requiring additional seating, but supporter groups are concerned about affordability.

Text B — Hospitality packages

1. As corporate incomes increased, demand for luxury hospitality packages grew rapidly. The club classifies these packages as a normal good, although their demand may fall sharply during a recession.

2. The club is considering separate prices for standard supporters and corporate customers. It must also consider security, catering and staffing costs rather than focusing only on ticket revenue.

Table 1 — Standard match tickets

Standard ticket prices and average attendance per match.

Table 2 — Corporate income and hospitality packages

Corporate income index and hospitality-package sales per season.

Music festival pricing in Rovina

Read the extracts and answer the questions that follow.

Text A — Early-booking tickets

1. Before the two observations in Table 1, competing festivals announced similar dates. The Rovina Sound Festival then lowered its early-booking ticket price. With other determinants of demand unchanged during the comparison, sales rose strongly, suggesting that festival tickets have relatively elastic demand.

2. Organizers want to expand attendance, but the site has capacity limits and additional visitors increase security, sanitation and performance costs. They therefore cannot assume that higher ticket revenue means higher profit.

Text B — Festival merchandise

1. Rising household incomes increased demand for premium festival merchandise. The demand increase was more than proportionate, indicating that the products are income elastic.

2. Organizers are considering separate prices for early buyers and last-minute buyers. Last-minute customers may have fewer alternatives, while early buyers have more time to compare festivals and travel plans.

Table 1 — Early-booking tickets

Early-booking ticket price and sales before and after the price reduction, with other demand determinants unchanged.

Table 2 — Income and premium merchandise

Average household-income index and premium festival-merchandise sales in Rovina.

Museum admission in Pelagos

Read the extracts and answer the questions that follow.

Text A — Admission fees

1. Pelagos National Museum increased its admission fee to finance conservation work. Visitor numbers declined by a smaller percentage than the fee increased. Many international tourists regard the museum as unique, giving it relatively price-inelastic demand.

2. Local residents have more substitute leisure activities and may be more responsive to admission fees. The museum is considering free resident days while maintaining higher tourist prices.

Text B — Private tours

1. As tourist income increased, bookings for private guided tours grew rapidly. The museum believes private tours are a luxury service with a high positive YED.

2. Conservation groups support additional revenue, but the tourism ministry is concerned that high fees could reduce access and visitor spending in nearby businesses.

Table 1 — Museum admission

Museum admission fee and annual visitor numbers.

Table 2 — Tourist income and private tours

Tourist income and annual private guided-tour bookings in Pelagos.

Veterinary care in Nambara

Read the extracts and answer the questions that follow.

Text A — Animal vaccines

1. Veterinary clinics increased the price of a required livestock vaccine after refrigeration costs rose. Farmers reduced purchases only slightly because the vaccine prevents a serious disease and is regarded as a necessity.

2. The agriculture ministry is considering a subsidy to maintain vaccination rates. Officials expect demand to be price inelastic but recognize that poor farmers spend a larger proportion of income on animal healthcare.

Text B — Premium pet grooming

1. As urban household income increased, demand for premium pet-grooming services rose more rapidly. These services are a normal good with income-elastic demand.

2. Veterinary businesses are considering expanding grooming capacity. Economists warn that YED estimates based on an expansion may not accurately predict demand during a recession.

Table 1 — Livestock vaccines

Table 1: Livestock vaccines

Table 2 — Income and pet-grooming services

Urban household income and premium pet-grooming appointments in Nambara

Meal-kit subscriptions in Terenza

Read the extracts and answer the questions that follow.

Text A — Subscription price reduction

1. A meal-kit company reduced the weekly price of its standard subscription. Subscriptions increased more than proportionately because households could switch between several companies, supermarkets and restaurant delivery. Demand was therefore price elastic.

2. The company’s revenue increased, but home-delivery and packaging costs also rose. Managers are considering whether to retain the lower price after a promotional period.

Text B — Recession purchases

1. During a recession, household income fell and demand for low-cost instant noodles increased. The noodles behaved as an inferior good over the observed income range.

2. The meal-kit company is considering introducing both a budget range and a premium range. Demand forecasts depend on the depth and duration of the recession and on changes in consumer preferences.

Table 1 — Standard meal-kit subscriptions

Weekly standard meal-kit subscription price and quantity before and after a price reduction.

Table 2 — Income and instant-noodle purchases

Income and monthly instant-noodle purchases in Terenza

Rural broadband in Solandra

Read the extracts and answer the questions that follow.

Text A — Broadband prices

1. Solandra Connect increased the monthly price of basic broadband after expanding its rural network. Subscriptions fell by a smaller percentage because households use broadband for education, work and public services. Demand appears relatively price inelastic.

2. The government is considering regulating prices or providing targeted vouchers. In the long run, mobile-data networks and satellite providers may become closer substitutes.

Text B — Premium-speed packages

1. As household income increased, subscriptions to premium-speed packages grew more than proportionately. These packages have positive income elasticity of demand.

2. Solandra Connect wants to invest in additional network capacity. Managers argue that higher revenue can finance investment, while consumer groups emphasize affordability and the digital divide.

Table 1 — Basic broadband subscriptions

Monthly price and subscriptions for basic broadband in Solandra.

Table 2 — Income and premium-speed subscriptions

Income and premium-speed broadband subscriptions in Solandra

Airline baggage charges in Meridia

Read the extracts and answer the questions that follow.

Text A — Checked baggage

1. Meridia Air increased its fee for one checked bag. The number of checked bags fell by a smaller percentage as many passengers could not easily reduce the luggage needed for long journeys. Demand was relatively price inelastic.

2. The airline is considering another increase, although passengers may switch to cabin luggage, baggage-delivery companies or rival airlines over time. Additional checked bags also create handling and fuel costs.

Text B — Coach travel during recession

1. During a fall in household income, demand for low-cost intercity coach journeys increased. Coach travel behaved as an inferior good over the observed income range.

2. Transport officials are concerned that higher airline charges may disproportionately affect families and passengers travelling for long periods. Meridia Air argues that baggage revenue allows it to keep headline ticket prices lower.

Table 1 — Checked-baggage fees

Checked-baggage fee and monthly checked bags at Meridia Air.

Table 2 — Income and intercity coach journeys

Household income and intercity coach journeys in Meridia.

Taxation of sugar-sweetened drinks in Montara

The government of Montara introduced a specific indirect tax of M$0.40 per bottle on sugar-sweetened drinks. Producers passed only part of the tax on to consumers. Health officials argue that consumption remains too high and are considering additional policies.

Table 1 presents market data before and after the tax.

For calculations in part (a), use the before-tax figures as the base for percentage changes and assume that other relevant determinants of demand did not change materially between the two observations.

Consumers have limited access to drinking-water refill stations, but the government plans to install them in schools and transport hubs. Public-health organizations also propose restrictions on advertising sugar-sweetened drinks to children.

Coffee exports and economic diversification in Cafara

Cafara is a lower-middle-income country that relies heavily on exports of unprocessed coffee beans. A poor harvest in several coffee-producing countries increased the world price of coffee beans. Cafara also imports manufactured coffee machines.

Table 1: Price, quantity and income changes

Price, quantity demanded and income-response data for Cafara's coffee-related markets, distinguishing export revenue from imported-machine expenditure.

The government is considering whether to continue supporting coffee-bean production or to promote manufactured products and services, including coffee processing, tourism and digital services.

Electricity consumption and a carbon levy in Norland

Norland generates most of its electricity using fossil fuels. The government introduced a carbon levy of N$0.05 per kilowatt-hour (kWh). Electricity suppliers absorbed part of the levy, and consumers gradually adopted energy-efficient appliances.

Table 1: Household electricity market

Household electricity prices and annual quantity demanded before and after the carbon levy in Norland.

Low-income households spend a relatively high proportion of their income on electricity. The government is considering whether to increase the levy, subsidize insulation and efficient appliances, or provide a fixed cash transfer to low-income households.

Rising incomes and structural change in Darsana

Darsana has experienced sustained economic growth. Employment is shifting from agriculture and basic transport towards digital and recreational services. The government wishes to help workers adapt to this change without supporting industries whose demand is expected to decline.

Table 1: Income and demand changes

Income and annual household demand changes in Darsana.

Economic forecasters also estimate that household income could fall by 6% during a future recession. Assume that the YED coefficients calculated from Table 1 remain constant for this forecast.

Metro fares in Belland

The publicly owned Belland Metro wishes to increase passenger numbers while limiting the operating deficit financed by the government. Economists estimate that its market demand curve is linear.

Table 1: Weekly market demand and total revenue

Demand differs between passenger groups because business passengers are often time-sensitive, while leisure passengers can more easily change the time, destination or mode of travel.

Table 2: Estimated PED by passenger group

The government is considering a general fare reduction, discounted off-peak fares and additional subsidies for the Metro.

Access to asthma inhalers in Selvia

The government of Selvia wants to improve access to asthma treatment. The recent entry of a generic inhaler changed demand for a branded inhaler. The government is also considering a subsidy for the generic inhaler.

Table 1: Branded inhaler market before and after generic entry

Table 1: Branded inhaler price and annual quantity demanded before and after generic entry.

Table 2: Proposed subsidy for generic inhalers

Generic inhaler prices and annual quantity demanded before and after the proposed subsidy.

Medical organizations warn that patients regard inhalers as necessities, but the branded product now has a close substitute. The government has a limited health budget and is also considering centralized procurement and a maximum price.