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Elasticity of demand for travel insurance

Markets · Straightforward · 8 marks

Wayfarer Cover sells single-trip travel insurance online. When it cut its price from £40 to £32 a policy, monthly sales rose from 5,000 to 6,000 policies. Assume nothing else affecting demand changed.

(i)
Calculate the price elasticity of demand using the original price and quantity as the base, to 2 decimal places.
2 marks
Your answer
(ii)
Calculate the price elasticity of demand using average (midpoint) values, to 2 decimal places.
2 marks
Your answer
(iii)
Calculate the change in Wayfarer's monthly premium income, in £.
2 marks
Your answer
(iv)
Explain why the two methods give different answers, and comment on which result is consistent with the change in premium income.
2 marks

Every topic, by weight

Economic schools, the economic way of thinking and recent history, 5%

Schools and history

Microeconomics, 40%

Markets, Consumer choice, Costs and profit, Competition and monopoly, Oligopoly and games, Pricing

Macroeconomics and the role of government, 55%

Market failure, Trade and exchange rates, The macroeconomy, Money and finance, Activity and inflation, Policy

In the course

15 lessons
145 questions
2 mock exams

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