How do I find opportunity cost?

Divide the quantity of the other good given up by the quantity of the good being produced.

Does a tariff always raise the local price?

Yes, a tariff raises the landed cost of imports, so the local price rises and imports fall.

S4 Economics, Paper 4: applying elasticity and correcting mistakes

2026-11-01

Income, cross and point elasticity each have their own formula; tax and subsidy are shared by elasticity, and a price floor above equilibrium creates a surplus.

Focus　Write the formula before substituting numbers, then check the conclusion with total revenue or the surplus.

01　Paper details (check answers afterwards)

Item	Detail
Questions	10
Suggested time	25
Difficulty mix	Foundation 4 · Intermediate 3 · Challenge 2 · Error redo 1
Chapter	Chapter: S4 Economics: Demand, Supply and Elasticity
Level	S4

02　Questions (10 items)

FoundationMonthly income rises from $20,000 to $22,000 and the quantity of coffee demanded rises from 50 to 60 cups. Find the income elasticity and classify the good.
FoundationA good has an income elasticity of -0.5. If income rises by 8%, what happens to quantity demanded?
FoundationThe price of good A falls 10% and the quantity of good B demanded falls 4%. Find the cross elasticity and state whether they are substitutes or complements.
FoundationThe demand curve is Qd = 100 – 2P. At a price of $20, find the point price elasticity of demand (absolute value, 2 decimal places).
IntermediateThe demand curve is Qd = 120 – 4P. Find the price and quantity at which the absolute price elasticity equals one.
IntermediateA tax of $30 is imposed. Demand elasticity is 2 and supply elasticity is 1. How much does each side bear?
IntermediateThe government gives producers a subsidy of $8 per unit. Which side, consumers or producers, gains more?
ChallengeDemand is Qd = 200 – 5P and supply is Qs = 50 + 5P. A price floor of $20 is set. Find the surplus.
ChallengeA good has a price elasticity of demand of 1.2. Price rises 10%. What happens to total revenue?
Error redoA student says: the slope of a demand curve is the price elasticity of demand. What is wrong?

03　Answers and one-line notes

#	Answer	One-line note
1	Income elasticity = 20% / 10% = 2.0, above one, so coffee is a luxury good.	Income elasticity divides the percentage change in quantity by that in income; above one means a luxury.
2	Demand falls by 4%, so the good is inferior.	A negative income elasticity means demand falls when income rises, so the good is inferior.
3	Cross elasticity = -4% / -10% = 0.4; it is positive, so the goods are substitutes.	A positive cross elasticity means the goods are substitutes; a negative one means complements.
4	Qd = 60, so elasticity = 2 x 20 / 60 = 0.67, which is inelastic.	Point elasticity equals the reciprocal of the slope multiplied by price over quantity.
5	4P / (120 – 4P) = 1, so P = $15 and Q = 60.	Unit elasticity occurs at the midpoint of a straight-line demand curve.
6	Consumers bear 30 x 1/3 = $10 and producers bear 30 x 2/3 = $20.	The less elastic side of the market bears the larger share of the tax.
7	The less elastic side gains more; if supply is less elastic than demand, producers gain more.	A subsidy is shared in inverse proportion to elasticity, so the less elastic side gains more.
8	Equilibrium P = $15 and Q = 125; at $20, Qd = 100 and Qs = 150, so the surplus is 50 units.	A price floor set above the equilibrium price creates a surplus.
9	Quantity falls 12%, so revenue becomes 1.1 x 0.88 = 0.968 of its old value, a fall of 3.2%.	When demand is elastic, a price rise reduces total revenue.
10	Wrong: every point on a straight-line demand curve has a different price and quantity, so a different elasticity; the slope is only one part of the formula.	Elasticity equals the reciprocal of the slope times price over quantity, so it changes along a straight line.

04　What to do after marking

After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
Repeat the same item two days later; move to the next paper only when both attempts are correct.
Parents only need the answer and note columns; there is no need to explain every item.

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