Hkcee 2010 Econ Paper 2 Q2 | Popular |

The HKCEE 2010 Paper was noted for its high difficulty. Q2 was difficult because:

The HKCEE examiner’s report highlighted frequent mistakes: hkcee 2010 econ paper 2 q2

The first part of Q2 typically asked: “If a transport company reduces its fares but finds its total revenue falls, what can be concluded about the price elasticity of demand for its service?” The HKCEE 2010 Paper was noted for its high difficulty

Economic theory: Total revenue (TR) is calculated as price (P) × quantity demanded (Q). The relationship between a price change and total revenue depends on whether demand is elastic, inelastic, or unit elastic: Application: The scenario states that a fare reduction

Application: The scenario states that a fare reduction caused total revenue to fall. According to the above relationship, this implies that demand for the transport service is price inelastic (PED < 1). Passengers are not very responsive to the fare cut; the percentage increase in ridership is smaller than the percentage drop in fare, so the company earns less total revenue.

Possible reasons for inelastic demand in public transport: