i) Define the categories of Price Elasticity of Demand (PED): elastic, inelastic and unit elastic.

(ii) State three factors that affect PED and explain how each factor affects it.

(30)

(b) A consumer/motorist buys 20 litres of petrol when the price is 1.60 per litre. When the price

increases to 1.70, as a result of an increase in carbon tax, the consumer buys 19 litres.

Calculate the consumer's Price Elasticity of Demand (PED). (Show all your workings.)

Is this demand for petrol price elastic or price inelastic? Outline the implication of your answer

for government revenue. (20)

(c) A firm is considering a change to its product's price. It conducts market research which reveals

that the Price Elasticity of Demand (PED) for the product is -2.5.

Use this information to answer the following question:

(i) If the firm wishes to maximise total sales revenue, should it lower or raise the price of the

product? Explain your answer.

The market research also reveals Income Elasticity of Demand (YED) for the product is +4.5.

Use this information to answer the following question:

(ii) In the case of an economy which is expected to remain in recession for the next five years,

what, if any, will be the likely impact on the demand for the product? Explain your answer.

(25)

[75 marks]

4. (a) Explain, with the aid of an example, each of the following terms:

Derived Demand

Transfer Earnings

Supply Price

Economic Rent. (20)

(b) (i) Outline two economic characteristics of 'land'.

(ii) Discuss three economic factors which influence a firm's decision on where to locate its

operations within Ireland.

(25)

(c) (i) State and explain three factors that caused the price of residential property to

fall considerably in Ireland in the years following 2007.

(ii) Mortgage arrears (i.e. the inability to meet mortgage loan obligations) is the biggest single

personal debt issue for many households.

Discuss one possible economic impact of mortgage arrears on each of following:

the household

the banking sector

the Irish Government.