Essential Maths Skills

for AS/A-level

Economics
Answers
Peter Davis and Tracey Joad
1 Fractions and ratios

Guided questions (p.11)

1 a Step 1: UK’s GDP per capita : Tanzania’s GDP per capita
= 38 400 : 2400
38 400 2400
Step 2: = :
2400 2400
= 16 : 1
b This shows that in 2013 the average income in the UK was approximately 16 times
the average income in Tanzania. Since the GDP figures are given at purchasing
power parity, this means that the quantity of goods that an individual can buy was
approximately 16 times higher in the UK than in Tanzania.
2 a The original ratios are
Cars : Bicycles
Country A 15 : 60
Country B 10 : 50
After dividing both sides of each ratio by the number of cars, the simplified
ratios are
Cars : Bicycles
Country A 1 : 4
Country B 1 : 5
Country A only has to sacrifice 4 bicycles to produce one car, whereas country
B would have to sacrifice 5 bicycles. Therefore country A has the smaller
opportunity cost of producing one car.
b After dividing both sides of each original ratio by the number of bicycles, the
simplified ratios are
Cars : Bicycles
Country A 1
4
: 1
Country B 1
5
: 1

Country A would have to sacrifice 14 car to produce one bicycle, whereas country B
would have to sacrifice 15 car. Because 15 (one-fifth) is smaller than 14 (one-quarter),
country B has the smaller opportunity cost of producing one bicycle.

Essential Maths Skills for AS/A-level Economics 1

Practice questions (p.13)
3 a Total spending per week = £480

Table A.1

Simplification of
Amount Proportion fraction (divide top Further
Category spent spent and bottom by 10) simplification
1
Housing, fuel 80 8 6
£80
and power 480 48 (divided top and
bottom by 8)
1
60 6 8
Transport £60
480 48 (divided top and
bottom by 6)
Food and non- 60 6 1
£60
alcoholic drinks 480 48 8

Recreation and 60 6 1
£60
culture 480 48 8

1
Restaurants and 40 4 12
£40
hotels 480 48 (divided top and
bottom by 4)
1
Household goods 30 3 16
£30
and services 480 48 (divided top and
bottom by 3)

So for this household, the proportions of total weekly spending in the different
categories are:
■■ 6 on housing, fuel and power
1

■■ 8 on transport
1

■■ 8 on food and non-alcoholic drinks

1

■■ 8 on recreation and culture

1

■■ 12 on restaurants and hotels

1

■■ 16 on household goods and services

1

b Restaurants and hotel spending : Recreation and culture spending

= 40 : 60
= 4 : 6 (dividing through by 10)
= 2 : 3 (dividing through by 2)
Note: this ratio can also be written as:
■■ 1 : 23 or 1 : 1.5 (after further dividing both sides by 2), which means that for every
£1 spent on restaurants and hotels, £1.50 is spent on recreation and culture
■■ 2
3
:1 (after dividing both sides of 2 : 3 by 3), which means for every £1 spent on
recreation and culture, two-thirds of a pound (approximately 67p) is spent on
restaurants and hotels

Essential Maths Skills for AS/A-level Economics 2

 2
c 5
of transport spending amounts to
2
× £60 = £24
5
So £24 is spent on public transport.
As transport spending totals £60, this means that £60 − £24 = £36 is spent on
other forms of transport.
4 a The total number of phone cases produced per minute is 3 + 2 = 5.
Three of these are black, so the proportion of phones produced each minute that
are black is 53.

b Black phone cases : Grey phone cases

= 3:2
c Dividing the ratio through by 3 gives
Black phone cases : Grey phone cases
= 1 : 23

1 grey + 1 grey = 2 grey

3 3 3

2 2
3 3

Figure A.1

This means that for every black phone case produced each minute, 23 of a grey
phone case is produced.
d Dividing both sides of the ratio in part b by 3 gives
Black phone cases : Grey phone cases

= 23 : 1

= 1 12 : 1

1 1
2 2

Figure A.2

Essential Maths Skills for AS/A-level Economics 3

 1
This means that for every grey phone case produced each minute, 1 2 of a black phone
case is produced.
5 GDP per capita for Greece : GDP per capita for USA
= 25 500 : 53 550
= 1 : 2.1 (1 d.p.)
(after dividing the original ratio through by 25 500)
Therefore the standard of living in the USA, in terms of the quantity of goods that an
‘average individual’ can actually buy, is just over two times that of Greece.
6 a Step 1: set up ratios.
Tractors : Lorries
Country A 30 : 60
Country B 40 : 50
Step 2: simplify the ratios. After dividing each ratio through by the number of
tractors, you get
Tractors : Lorries
Country A 1 : 2
Country B 1 : 5
4

Note that is the same as 1 4 .

5 1
4

So country A would have to sacrifice the production of 2 lorries to produce

1 tractor, and country B would have to sacrifice the production of 1 4 lorries to
1

produce 1 tractor.
b If you divide each original ratio through by the number of lorries, you get
Tractors : Lorries
1
Country A 2 : 1

Country B 4
5 : 1

So country A would have to sacrifice the production of half a tractor to produce

1 lorry, and country B would have to sacrifice the production of 45 (four-fifths) of
a tractor to produce 1 lorry.
c The opportunity cost in the production of lorries is the number of tractors whose
production would be foregone for every lorry that the country produces. From the
results in part b, country A has the lower opportunity cost in the production of
lorries because for every lorry it produces, it only has to sacrifice the production
of half a tractor, whereas country B would have to sacrifice the production of
four-fifths of a tractor (which is greater than a half).
7 a The ratio tells us that there is 1 dependent for every 2 people of working age,
which is the same as saying that there is 1 dependent for every 3 people in the
whole population.

Essential Maths Skills for AS/A-level Economics 4

 So the proportion of the total population who are dependents is 13.
Since an individual must be either a dependent or part of the working-age
population, it follows that the proportion of the total population who are of
working age is 23 .
b Dependents make up 13 of the population. So their total number is
1
× 60 million
3
= 20 million
(On a calculator, do 1 divided by 3 and then this answer multiplied by 60.)

Essential Maths Skills for AS/A-level Economics 5

2 Percentages, percentage changes
and elasticity

Percentages
Guided questions (p.16)
1 Adding the top three market shares together:
45% + 20% + 15% = 80%
So the three-firm concentration ratio is 80%.
2 Step 1: the amount of interest is
2
× £2500 = £50
100
Step 2: add this to the original deposit:
£50 + £2500 = £2550
So Mitchell’s bank balance at the end of the year is £2550.
£99 billion
3 a × 100%
£743 billion
= 13.32436… %
= 13.3% (3 s.f.)
£232 billion
b × 100%
£743 billion
= 31.22476… %
= 31.2% (3 s.f.)
4 a Convert 20% to a fraction and multiply by the amount of income above £10 000:
Income tax = 20% × (£14 650 − £10 000)
20
= × £4650
100
= £930
b Catherine will pay £930 in income tax. Divide this amount by her total income
and multiply by 100 to get the percentage of income that will be paid in tax:

£930
× 100%
£14 650
= 6.34812… %
= 6.35% (3 s.f.)

Essential Maths Skills for AS/A-level Economics 6

Practice questions (p.17)
5 Total costs = £1.2 million = £1 200 000
Applying the percentage formula:
£300 000
× 100 = 25
£1200 000
So 25% of total costs was spent on wages and salaries.
6 To calculate 30% of £620 billion, convert 30% to a fraction and multiply by
£620 billion:
30
30% =
100
30
× £620 billion = £186 billion
100
7 To calculate percentages, divide the relevant figures by the GDP and multiply by 100.
£54 billion
a × 100 = 7.2483… = 7.25 (3 s.f.)
£745 billion
So the budget deficit is 7.25% of GDP.

b £612 billion × 100 = 82.14765… = 82.1 (3 s.f.)

£745 billion
So the national debt is 82.1% of GDP.
8 In each case convert the relevant percentage to a fraction and multiply by 4.5 million.
72
a 72% =
100
72
× 4.5 million = 3.24 million
100

b 6% = 6
100
6
× 4.5 million = 0.27 million = 270 000
100
9 The three-firm concentration ratio is the combined market share of the top three
firms. To find this, add up the revenues of the top three firms and divide by the total
revenue of all (four) firms. Then convert to a percentage.
£330500 + £220 750 + £99500
× 100%
£330500 + £220 750 + £99500 + £98750
£650 750
= × 100%
£749500
= 86.8245… %
= 87% (to the nearest per cent)

Essential Maths Skills for AS/A-level Economics 7

Percentage changes
Guided questions (p.20)
1 Use the percentage change formula with the following figures:
■■ new value = €1352 billion
■■ original value = €1300 billion
(new value − original value)
percentage change = × 100
original value
€1352 billion − €1300 billion
= × 100
€1300 billion
€52 billion
= × 100
€1300 billion
=4
Hence the economic growth of this country in 2014 was 4%.
2 ‘40% reduction’ means that the percentage change has a negative sign:
■■ new value = $72
■■ percentage change = −40
 percentage change 
original value = new value ÷  1 + 
 100
 −40 
= $72 ÷  1 +
 100 
= $72 ÷ (1 − 0.4)
= $72 ÷ 0.6
= $120
So the oil price 6 months ago was $120 per barrel.
3 a Step 1: X is the UK inflation rate for the year up to February 2014. It can be
calculated as the percentage change in the consumer price index over the year:
(new value − original value)
percentage change = × 100
original value
(127.4 − 125.2)
= × 100
125.2
2.2
= × 100
125.2
= 1.757 …
So X = 1.8% (1 d.p.)
Step 2: now find the difference between the two inflation rates:
X − 0.7 = 1.8 − 0.7 = 1.1
Therefore UK inflation is 1.1 percentage points above that in the Eurozone.

Essential Maths Skills for AS/A-level Economics 8

 b For the Eurozone:
■■ original value of price index = 116.1
■■ percentage change = 0.7
So the new value of the price index can be found from
 percentage change 
new value = original value ×  1 + 
 100
 0.7 
= 116.1 ×  1 + 
 100
= 116.1 × 1.007
= 116.9 (1 d.p.)

Practice questions (p.21)

4 Profit in 2014 is given by
 percentage change 
new value = original value ×  1 + 
 100
 7.5 
= £45 million ×  1 +
 100 
= £45 million × 1.075
= £48.375 million
5 The inflation rate is the percentage change in the price level:
(new value − original value)
percentage change = × 100
original value
(128.2 − 127.5)
= × 100
127.5
0.7
= × 100
127.5
= 0.55 (2 d.p.)
Hence the UK rate of inflation was 0.55%.
6 Using the figures
■■ new value = £193 048
■■ percentage change = 5.2
calculate:
 percentage change 
original value = new value ÷  1 + 
 100
 5.2 
= £193048 ÷  1 +
 100 
= £193048 ÷ 1.052
= £183 505.703…
So, to the nearest pound, the average UK house was worth £183 506 a year earlier.

Essential Maths Skills for AS/A-level Economics 9

7 Here you are given that the change is 20p, so first use this to work out the original
minimum wage. Be careful to use consistent units (e.g. all pounds or all pence).
20p = £0.20
original value = £6.70 − £0.20 = £6.50
(new value − original value)
percentage change = × 100
original value
£0.20
= × 100
£6.50
= 3.0769…
Therefore the percentage increase in the national minimum wage for adults is
3.08% (3 s.f.)
8 This question is about calculating percentage changes for various macro-economic
indicators. One key skill is being able to select the relevant figures from the table —
some of the data is not needed.
(new value − original value)
a i percentage change = × 100
original value
(1.35 million − 1.8 million)
= × 100
1.8 million
−0.45 million
= × 100
1.8 million
= −25

Therefore the change in unemployment between 2013 and 2014 is a 25% decrease.
A negative value of percentage change means a decrease. Remember to state
in your answer whether it is a percentage increase or decrease.
(new value − original value)
ii percentage change = × 100
original value
(£1.30 − £1.20)
= × 100
£1.20
£0.10
= × 100
£1.20
= 8.333…
Therefore the change in exchange rate between 2013 and 2014 is an 8.33%
increase.
b The rate of economic growth is the percentage change in real GDP:
(new value − original value)
percentage change = × 100
original value
(£1275 billion − £1250 billion)
= × 100
£1250 billion
£25 billion
= × 100
£1250 billion
=2
So the rate of economic growth is 2%.

Essential Maths Skills for AS/A-level Economics 10

9 a Here you need to find the ‘new value’ if the share value increased by 8% and if it
fell by 2%.
For an 8% increase:
 percentage change 
new value = original value ×  1 + 
 100
 8 
= £450 ×  1 +
 100 
= £450 × 1.08
= £486
For a 2% decrease:
 percentage change 
new value = original value ×  1 + 
 100
 −2 
= £450 ×  1 +
 100 
= £450 × (1 − 0.02)
= £450 × 0.98
= £441
Therefore the forecasts ranged from £441 to £486.
(new value − original value)
b percentage change = × 100
original value
(£444 − £450)
= × 100
£450
−£6
= × 100
£450
= −1.333…
Hence the percentage change in the BT share value would be a fall of 1.33% (3 s.f.).
10 a From the data for 3 months, you can calculate two monthly percentage changes
and compare them to see which is higher.
From May to June 2015:
($1216 − $1210) $6
× 100% = × 100% = 0.496% (3 s.f.)
$1210 $1210
From June to July 2015:
($1223 − $1216) $7
× 100% = × 100% = 0.576% (3 s.f.)
$1216 $1216
Therefore the monthly percentage change was higher in July 2015.
b The percentage point change is found by calculating the difference between the
percentage changes in June and July:
0.576 − 0.496 = 0.08
So there was a 0.08 percentage point increase in July compared to June.

Essential Maths Skills for AS/A-level Economics 11

 c Here you want the new value for the end of the year, knowing it will have
decreased by 12% from the value in July 2015:
 percentage change 
new value = original value ×  1 + 
 100
 −12 
= $1223 ×  1 +
 100 
= $1223 × (1 − 0.12)
= $1223 × 0.88
= $1076.24
So the forecast value of gold at the end of 2015 is $1076 to the nearest dollar.

Elasticity calculations
Guided questions (p.24)
1 a Step 1: calculate the percentage change in the price of beer (good Y):
(new value − original value)
%∆ price of beer = × 100%
original value
(£3.40 − £4.00)
= × 100%
£4.00
= −15%
Step 2: then use this value and the given percentage change in demand for wine to
calculate XED:
%∆ quantity demanded (good X)
XED =
%∆ price (good Y)
%∆ quantity of wine demanded
=
%∆ price of beer
−2%
=
−15%
= +0.13 (2 d.p.)
b As the XED is positive, beer and wine are substitutes.
2 Step 1: %∆ quantity supplied = PES × %∆ price
Step 2: find the percentage change in the price of copper:
(new value − original value)
%∆ price of copper = × 100%
original value
($175 − $125)
= × 100%
$125
= 40%

Essential Maths Skills for AS/A-level Economics 12

 Step 3: use this figure and the given PES value to calculate the percentage change in
quantity supplied:
%∆ quantity supplied = PES × %∆ price
= ( +0.4) × 40%
= +16%
Therefore a 16% increase in the quantity of copper supplied would be expected.
3 a Fish and chips:
%∆ quantity demanded = PED × %∆ price
= ( −2.0) × ( −12%) = +24%
Chinese:
%∆ price = %∆ quantity demanded ÷ PED
= ( +25%) ÷ ( −2.5)
= −10%
Indian:
%∆ quantity demanded
PED =
%∆ price
−5%
=
+1.5%
= −3.33 (2 d.p.)
b All the takeaways have price-elastic demand as their PED values are below −1.
4 a %Δ quantity demanded of cereal = −3%
(new value − original value)
%∆ price of milk = × 100%
original value
(£1.32 − £1.10)
= × 100% = +20%
£1.10
%∆ quantity demanded of cereal
XED =
%∆ price of milk
−3%
=
20%
= −0.15
b Step 1:
Before price change:
total revenue
quantity demanded =
price
£275
= = 250
£1.10
After price change:
total revenue
quantity demanded =
price
£316.80
= = 240
£1.32

Essential Maths Skills for AS/A-level Economics 13

 Step 2:
(new value − original value)
%∆ quantity demanded = × 100%
original value
(240 − 250)
= × 100%
250
= −4%
Step 3: from part a you have %Δ price = +20%.
Step 4: substituting these percentage changes into the PED formula:

%∆ quantity demanded
PED =
%∆ price
−4%
=
+20%
= −0.2

Practice questions (p.27)

%∆ quantity supplied +4%
5 PES = = = +0.4
%∆ price +10%
6 a The missing figures are both YED values.
For second-hand clothing:
%∆ quantity demanded +13%
YED = = = −0.87 (2 d.p.)
%∆ income −15%
For designer clothing:
%∆ quantity demanded +100%
YED = = = +5
%∆ income +20%
b i Second-hand clothes are an inferior good as they have negative YED.
ii Designer clothes are a normal good as they have positive YED.
iii Designer clothes have income-elastic demand as their YED is above +1.
7 a Before applying the XED formula, first calculate the percentage changes.
(new value − original value)
%∆ quantity demanded of games = × 100%
original value
(28000 − 25000)
= × 100%
28000
= 10.7% (3 s.f.)

(new value − original value)

%∆ price of games console = × 100%
original value
(£270 − £300)
= × 100%
£300
= −10%

Essential Maths Skills for AS/A-level Economics 14

 Therefore
%∆ quantity demanded of games
XED =
%∆ price of games console
10.7%
=
−10%
= −1.07 (3 s.f.)
b The games console and its games are complements because their XED is negative.
8 The completed table is as follows. Calculations are shown below.

Table A.2

%∆ price %∆ QD PED
Alcohol +3 X = −1.2 −0.4
Tobacco +12 −0.48 Y = −0.04
Petrol Z = −8 +2 −0.25
For Y you can use the PED formula directly, but for X and Z the formula needs to be
rearranged.
Alcohol: X = %∆ quantity demanded = PED × %∆ price
= ( −0.4) × ( +3)
= −1.2
% ∆ quantity demanded
Tobacco: Y = PED =
% ∆ price
−0.48
=
+12
= −0.04
Petrol: Z = %∆ price = %∆ quantity demanded ÷ PED
= ( +2) ÷ ( −0.25)
= −8
9 In this question you are given values of %Δ price and asked to find the change
in quantity demanded or supplied. So first rearrange the PED and PES formulae
appropriately.
a Following a 15% rise in price:
%∆ quantity demanded = PED × %∆ price
= ( −1.5) × ( +15%)
= −22.5%
%∆ quantity supplied = PES × %∆ price
= ( +0.8) × ( +15%)
= +12%
b Following a 20% fall in the price:
%∆ quantity demanded = PED × %∆ price
= ( −1.5) × ( −20%)
= +30%

Essential Maths Skills for AS/A-level Economics 15

 %∆ quantity supplied = PES × %∆ price
= ( +0.8) × ( −20%)
= -16
10 a i The XED formula in this situation is
%∆ quantity demanded of train journeys
XED =
%∆ price of bus journeys
Rearranging gives
%∆ quantity demanded of train journeys = XED × %∆ price of bus journeys
= ( +0.2) × ( +20%)
= +4%

ii The YED formula is

%∆ quantity demanded of train journeys
YED =
%∆ income
Rearranging gives
%∆ quantity demanded of train journeys = YED × %∆ income
= (+0.4) × (-4%)
= −1.6%
b Step 1: calculate the percentage change in quantity demanded of bus journeys:
(new value − original value)
%∆ quantity demanded = × 100%
original value
(19 240 − 18500)
= × 100%
18500
= + 4%
Step 2: rearrange the YED formula to get
%∆ income = %∆ quantity demanded ÷ YED
= ( + 4%) ÷ ( +0.75)
= +5.33% (3 s.f.)
So a 5.33% rise in income would have caused the increase in bus journeys.
11 The completed table is as follows. Calculations are shown below. In each case you
need to use the YED formula or a suitable rearrangement of it.

Table A.3

% change
in income Original quantity New quantity YED
Pasta +3% 150 bags 150 bags +0.02
Cars +5% 28 cars 30 cars +1.60
Blu-ray discs +16.7% 20 discs 25 discs +1.20
Value ready meals −20% 1 500 meals 1 875 meals -1.25

Pasta:
%∆ quantity demanded = YED × %∆ income
= ( +0.02) × ( +3%)
= +0.06%

Essential Maths Skills for AS/A-level Economics 16

  percentage change 
new value = original value ×  1 + 
 100
 0.06 
= 150 ×  1 +
 100 
= 150 × 1.0006 = 150.09
So, to the nearest whole number, the new quantity of pasta is 150.
Cars:
%∆ quantity demanded = YED × %∆ income
= ( +1.6) × ( +5%)
= +8%
 percentage change 
original value = new value ÷  1 + 
 100
 8 
= 30 ÷  1 +
 100 
= 30 ÷ 1.08 = 27.777 …
So, to the nearest whole number, the original quantity of cars is 28.
Blu-ray discs:

%∆ quantity demanded =
( new value − original value ) × 100%
original value
(25 − 20)
= × 100%
25
= +20%
%∆ income = %∆ quantity demanded ÷ YED
= ( +20%) ÷ ( +1.20)
= +16.666 … % = +16.7% (3 s.f.)
Value ready meals:
(new value − original value)
%∆ quantity demanded = × 100%
original value
(1875 − 1500)
= × 100%
1500
= +25%

%∆ quantity demanded
YED =
%∆ income
+25%
=
−20%
= −1.25

Essential Maths Skills for AS/A-level Economics 17

12 a We are given that for pianos, %Δ price = −10%.
i Rearranging the PED formula gives
%∆ quantity demanded = PED × %∆ price
= ( −3.0) × ( −10%)
= +30%

(
So new quantity demanded = 20 × 1 + 100
30
)
= 20 × 1.3 = 26 pianos.
ii Use the formula
total revenue = price × quantity demanded
Original total revenue = £700 × 20 = £14 000
( −10
New price = £700 × 1 + 100 )= £700 × 0.9 = £630
New total revenue = £630 × 26 = £16 380
Change in revenue = £16 380 − £14 000 = £2380, i.e. total sales revenue from
pianos increased by £2380.
b i Step 1: calculate the percentage change in quantity demanded of guitars:
(new value − original value)
%∆ quantity demanded of guitars = × 100%
original value
(150 − 200)
= × 100% = −25%
200
Step 2: use the XED formula:
%∆ quantity demanded of guitars
XED =
%∆ price of pianos
−25%
= = +2.5
−10%
ii Again, use the formula
total revenue = price × quantity demanded
Original revenue = £120 × 200 = £24 000
New revenue = £120 × 150 = £18 000
Change in revenue = £18 000 − £24 000 = −£6000, i.e. total sales revenue from
guitars fell by £6000.
c The total revenue fell overall, as the loss in revenue from guitars (£6000) is greater
than the gain in revenue from pianos (£2380).

Essential Maths Skills for AS/A-level Economics 18

3 Averages and quantiles

Mean and median

Guided questions (p.31)
1 a Step 1: this set of data has 10 observations — there are 10 pieces of wage rate
information.
Step 2: sum of the data values = 4 + 6 + 4 + 4.50 + 9 + 15 + 7 + 5 + 5 + 5.50 = 65
Step 3: mean = 65 ÷ 10 = 6.5
So the mean wage rate for these students is £6.50 per hour. (This is often just
written as ‘the average wage rate for these students is £6.50 per hour’.)
b Step 1: in increasing order the wage rates are
4 4 4.50 5 5 5.50 6 7 9 15
Step 2: there are 10 observations. This is an even number.
Step 3: the middle values are the 5th and 6th, which are 5 and 5.50.
Step 4: median = (5 + 5.50) ÷ 2 = 5.25 or 5 + (5.50 − 5) ÷ 2 = 5.25
So the median wage rate for these students is £5.25 per hour.
2 Step 1: this set of data has 10 observations.
Step 2: sum of the data values = 6.5 + 7 + 6.5 + 2 + (-3.5) + (-5) + (-2.5) + 1.5 + 4 + 4
= 6.5 + 7 + 6.5 + 2 - 3.5 - 5 - 2.5 + 1.5 + 4 + 4
= 20.5
Step 3: mean = 20.5 ÷ 10 = 2.05
So the mean growth rate p.a. over the period 2004–13 is 2.05%. (This is often written
as ‘the average annual growth rate over the period 2004–13 is 2.05%’.)

Practice questions (p.33)

3 a Sum of the values = 40 000 + 20 000 + 25 000 + 28 000 + 30 000 = 143 000
Number of observations = 5
Mean = 143 000 ÷ 5 = 28 600
The mean salary of the group is £28 600.
b Ordering the salaries by size:
20 000, 25 000, 28 000, 30 000, 40 000
There are 5 values, an odd number, so the median is the middle value, which is the
3rd one, 28 000.
The median salary of the group is £28 000.

Essential Maths Skills for AS/A-level Economics 19

4 If taxpayers’ income before tax was ranked in order of size, the median would be the
income before tax of the ‘middle’ individual. For example, the ‘middle’ taxpayer in
the 20–24 age group had a income before tax of £14 500 in 2012–13.
The mean income before tax for the 20–24 age group was £16 400. This is the
total income before tax of all individuals in this group divided by the number of
individuals in the group.
For both age groups, the mean being higher than the median indicates that there are
some very high individual incomes in each age group. These exceptionally high
numbers push up the mean, and if they are spread out further from the middle than
the low values, then the mean will lie above the median.
5 a Sum of values for Germany = 6.6 + 7.3 + 7.4 = 21.3
Number of observations = 3
Mean = 21.3 ÷ 3 = 7.1
The average current account balance for Germany was 7.1% of GDP.
b Sum of values for the UK = −1.4 − 3.6 − 4.2 = −9.2
(Remember that adding a number with a negative sign is the same as subtracting
the number. Be careful as the sum starts with a negative number here.)
Number of observations = 3
Mean = −9.2 ÷ 3 = −3.1 (1 d.p.)
The average current account balance for the UK was −3.1% of GDP.
c The mean for Germany was positive because Germany had a surplus on its current
account balance every year from 2011 to 2013 (a positive sign for the account
balance as a percentage of GDP indicates a surplus) and therefore a surplus
‘average’.
In contrast, the current account balance as a percentage of GDP was consistently
negative for the UK over 2011–13. This indicates that the UK had a deficit on its
current account over this period, and so the average (mean) is also a deficit, i.e.
negative.
6 If the incomes of all households were lined up in order of increasing size, the median
household income would be the value in the middle. So, in 2012–13, the ‘middle
household’ had an income of £374 per week after housing costs.
Relative poverty is defined as the proportion of people or households living on less
than 60% of the median income:
60% of £374 = 0.6 × £374 = £224.40
So the ONS statement says that 21% of people, representing 13.2 million people
out of 63 million, live on less than £224.40 per week (after housing costs). This is
approximately one in five of the whole population.

Essential Maths Skills for AS/A-level Economics 20

Quantiles
Guided questions (p.36)
1 a Step 1: in increasing order of size, the earnings are
50 150 150 200 250 300 300 350 400 400
Step 2: there are 10 values. The two middle values are the 5th and 6th, which are
250 and 300.
The median is halfway between these two numbers: (250 + 300) ÷ 2 = 275.
So the median is £275.
b To the left of the median you have
50 150 150 200 250
The median of these five values is the middle one, 150, so the lower quartile
is £150.
c To the right of the median you have
300 300 350 400 400
The median of these five values is the middle one, 350, so the upper quartile
is £350.
2 Step 1: the top and 4th quintiles make up the richest 40% of households (each
accounts for 20% of households).
Step 2: they have 35% and 23% of the total disposable income, respectively.
Step 3: therefore the richest 40% of households together account for 35% +
23% = 58% of the total disposable income.

Practice questions (p.37)

3 a In increasing order of size, the wage rates are
£4 £4.50 £5 £5 £6 £8 £10
There are 7 values. The middle value is the 4th, which is £5.
So the median wage rate is £5.
b To the left of the median you have
£4 £4.50 £5
The median of these three values is £4.50, which is one-quarter of the way
through the full data set, so the lower quartile is £4.50.
c To the right of the median you have
£6 £8 £10
The median of these three values is £8, which is three-quarters of the way through
the full data set, so the upper quartile is £8.

Essential Maths Skills for AS/A-level Economics 21

4 a If households were lined up in order of increasing wealth, the middle household
would have the median wealth, which is £218 400.
b £57 000 is the lower quartile, which means that a quarter, or 25%, of households
have wealth of £57 000 or less.
c £57 000 is the lower quartile, which is the same as the 25th percentile.
£490 000 is the upper quartile, which is the same as the 75th percentile.
So 75% − 25% = 50% (or a half) of households have wealth between £57 000 and
£490 900.
The question asks for the ‘proportion’ of households. This can be expressed as
either a fraction or a percentage.
5 a The data values (household incomes) have been ranked in order of increasing
size and then split into five equal groups, so each group represents a quintile. The
average (i.e. mean) income is calculated for each quintile group by adding up all
the incomes in that group and then dividing by the total number of households
in the group. For instance, the first quintile group consists of the poorest 20% of
households, and the mean income for this group is £5000.
b The richest 20% of households make up the top quintile, which has an average
household income of £80 000.
c The poorest 20% of households make up the bottom quintile, which has an
average household income of £5000.
So the ratio of average household income of the richest 20% to the poorest 20% is
80 000 : 5000 = 16 : 1
(after dividing through by 5000)
This means that the average household income of the top quintile is 16 times
higher than that of the bottom quintile.

Essential Maths Skills for AS/A-level Economics 22

4 Money and index numbers

Index numbers
Guided questions (p.40)
1 a 97.5 − 100 = −2.5, i.e. 97.5 is 2.5 below 100.
This means that the rate of economic growth in 2009 was negative 2.5%.
b 98.2 – 100 = −1.8
So the GDP was 1.8% lower in 2011 than in 2008.
2 The index number for 2012 (base year) is 100.
current figure
index for 2013 = × 100
figure in base time period
£286 million
= × 100
£260 million
= 110
current figure
index for 2014 = × 100
figure in base time period
£104 million
= × 100
£260 million
= 40
3 a The highest oil prices were in 2013, as this year had the highest index number.
index number in 2013
oil price in 2013 = oil price in 2010 ×
100
131
= $70 ×
100
= $91.70

b Using the standard index number formula:

oil price in 2015
index number in 2015 = × 100
oil price in 2010
$52.50
= × 100
$70
= 75

Essential Maths Skills for AS/A-level Economics 23

Practice questions (p.41)
4 No formula is needed for this question. As the value in 2014 was 12% above the level
in 2008 (the base year), simply add 12 on to 100 to get the index number:
index number for 2014 = 100 + 12 = 112
5 a As January 2013 is the base time period, its index number is 100. The rate of
inflation is the percentage change in the price index. It can be found by looking
at the difference between the current price index and 100. The price index in
January 2014 was 102.3.
102.3 − 100 = 2.3
So the rate of inflation from January 2013 to January 2014 was 2.3%.
b The price index in January 2015 was 96.
96 − 100 = −4
So the price level in January 2015 was 4% below the level in January 2013.
6 The base year is 2010, with index 100. To calculate the index number for this year,
use the standard index number formula:
current figure
index number = × 100
figure in base time period
$470 billion
= × 100
$435 billion
= 108 (3 s.f.)
7 a Taking a year ago as the base period, the exchange rate then has an index number
of 100. The current exchange rate is 8% lower, so the index number must be 8
below 100:
100 – 8 = 92
b The pound’s exchange rate against the dollar a year ago is the ‘figure in the base
time period’. This can be calculated using the formula
index number
figure in base time period = current figure ÷
100
92
= $1.45 ÷
100
= $1.58 (3 s.f.)
So the exchange rate a year ago was £1 : $1.58.

Essential Maths Skills for AS/A-level Economics 24

8 a Table A.4 has the index numbers filled in. The calculations are shown below.

Table A.4

2010–11 2011–12 2012–13 2013–14

Tax revenue receipts £828 billion £720 billion £648 billion £792 billion
Index number 115 100 90 110

Each index number can be calculated using the standard index number formula
current figure
index number = × 100
figure in base time period
tax receipts in 2010−11
index for 2010−11 = × 100
tax receipts in 2011−12
£828 billion
= × 100 = 115
£720 billion
tax receipts in 2012−13
index for 2012−13 = × 100
tax receipts in 2011−12
£648 billion
= × 100 = 90
£720 billion
tax receipts in 2013−14
index for 2013−14 = × 100
tax receipts in 2011−12
£792 billion
= × 100 = 110
£720 billion
b Calculate the tax revenue receipts corresponding to each of the forecast index
numbers.
For the forecast index 102:
index number
current figure = figure in base time period ×
100
102
= £720 billion × = 734.4 billion
100
For the forecast index 104:
index number
current figure = figure in base time period ×
100
104
= £720 billion × = 748.8 billion
100
Therefore the range of forecast values was from £734.4 billion to £728.8 billion.
9 a Because the current index number is 125, which is 25 above 100, in percentage
terms the gain in the value of the portfolio since its creation is 25%.
b To find the value in pounds that the portfolio has gained since its creation, you
need to know its original value at the time of creation (as you are given the
current value).

Essential Maths Skills for AS/A-level Economics 25

 Using the rearranged index number formula:
index number
figure in base time period = current figure ÷
100
125

= £4375 ÷
100
= £3500

Therefore the portfolio value has increased by £4375 − £3500 = £875.
An alternative method is to use percentages (see Unit 2). From part a you
know that the percentage change in the portfolio value is 25%. So
 percentage change 
original value = new value ÷  1 + 
 100
 25 
= £4375 ÷  1 +
 100 
= £4375 ÷ 1.25
= £3500
Therefore the portfolio value has increased by 25% of £3500, i.e. 0.25 × £3500 = £875.
10 a At the end of 1 April the index was 101.5. So
index number
current figure = figure in base time period ×
100
101.5
= $14.50 ×
100
= $14.7175
= $14.72 (to the nearest cent)
b At the end of 10 April the index was 89.1. So
index number
current figure = figure in base time period ×
100
89.1
= $14.50 ×
100
= $12.9195
= $12.92 (to the nearest cent)

Converting money to real terms

Guided questions (p.45)
1 Step 1 and Step 2: use the formula with 2008 as the comparison period and 2014 as
the current period.
Step 3: substitute in the following figures:
■■ index of comparison period = 215
■■ index of current period = 237
■■ nominal value = $25 000

Essential Maths Skills for AS/A-level Economics 26

 index of comparison period
real savings = × nominal savings
index of current period
215
= × $25000
237
= $22 679.32 (to the nearest cent)

2 a Step 1 and Step 2: use the rearranged formula with March 2014 as the comparison
period and March 1974 as the current period.
Step 3: substitute in the following figures:
■■ index of current period = 100 (because March 1974 is the base year of the price
index)
■■ real value = $59
■■ nominal value = $12
$59
price index in March 2014 = × 100
$12
= 491.67 (2 d.p.)
b Inflation from March 1974 to March 2014
= price index in March 2014 − price index in March 1974
= 491.67 − 100
= 391.67
So the rate of inflation was 391.67%.
3 To calculate A, rearrange the standard conversion formula to
index of current year
nominal value = real value ×
index of comparison year

Here the comparison year is 2010, which is also the base year of the price index. So

A = nominal consumption in 2013

price index in 2013
= real value ×
price index in 2010
110.1
= 961.9 ×
100
= 1059 (to the nearest £billion)
To calculate B, use the standard formula
B = real consumption in 2014
index of comparison year
= × nominal value
index of current year
price index in 2010
= × nominal value
price index in 2014
100
= × 1103
111.8
= 987 (to the nearest £billion)

Essential Maths Skills for AS/A-level Economics 27

Practice questions (p.46)
4 Use the standard nominal to real conversion formula, with 2005 as the comparison year:
index of comparison year
real debt = × nominal debt
index of current year
100
= × £8500
129
= £6589 (to the nearest pound)
5 In this question you need to find out what $1282, the nominal gold price in September
2010, is in terms of September 2014 standards. So the comparison period is
September 2014, and the ‘current period’ (the period for which you want to calculate
the real value) is September 2010. Then, using the conversion formula:
index of comparison period
real value = × nominal value
index of current period
109.0
= × $1282
100
= $1397 (to the nearest dollar)
6 The phrase ‘assuming constant 2013 prices’ tells you that 2013 is the comparison
period. To calculate the nominal spending in 2014, rearrange the standard conversion
formula to
index of current year
nominal value = real value ×
index of comparison year
Therefore
index in 2014
nominal spending in 2014 = real spending in 2014 ×
index in 2013
104.7
= 14.9 trillion yuan ×
102.6
= 15.2 trillion yuan
7 The phrase ‘assuming constant 2012 prices’ tells you that 2012 is the comparison period.
Using the standard nominal to real conversion formula:
index in 2012
real GDP per capita in 2014 = × nominal GDP per capita in 2014
index in 2014
230
= × $54 630
237
= $53 016 (to the nearest dollar)
8 In this question you need to calculate price indices for 2 years.
Rearrange the standard conversion formula to
nominal value
index of current year = × index of comparison year
real value
The completed table is as follows. The calculations are given below. The comparison
year is 2012 here.

Essential Maths Skills for AS/A-level Economics 28

Table A.5

Consumer price index

Year Nominal house price (£) Real house price (£) (2012 = 100)
2012 162 900 162 900 100
2013 174 000 169 800 102.5
2014 189 000 181 600 104.1

For 2013:
nominal value
index of current year = × index of comparison year
real value
174 000
= × 100
169800
= 102.4734…
For 2014:
nominal value
index of current year = × index of comparison year
real value
189 000
= × 100
181600
= 104.0748…

Essential Maths Skills for AS/A-level Economics 29

5 Standard graphical forms

Main types of graphs used in economics

Guided questions (p.54)
1 a To the right of 2002, the line that rises the most steeply is the one for China.
Therefore China has experienced the most rapid increase in CO2 emissions
since 2002.
b From 1976, China and India have both experienced a general rise in the level of
CO2 emissions. However, for China the rise has not been steady: it accelerated
sharply from 2003.
India experienced a steady and also much slower rise over time, compared to
China, as its line is consistently rising but less steep.
Therefore India is the country that has experienced a slow but consistently steady
rise in the level of CO2 emissions since 1976.
c There seems to be a downward trend in the CO2 emissions of the EU since 1980,
and there are no major erratic movements during this period.
Therefore the level of CO2 emissions by the EU since 1980 has followed a
downward trend, with emissions falling slowly and steadily.
2 Step 1: total sales revenue = £120 000 + £180 000 + £60 000 + £140 000 = £500 000
Step 2: the fraction of total sales revenue that each product contributes is:
£120 000 6
Product A: £500 000
= 25
£180 000 9
Product B: £500 000
= 25
£60 000 3
Product C: £500 000
= 25
£140 000 7
Product D: £500 000 = 25

(In each case the fraction has been simplified by dividing top and bottom by 20 000.)
Step 3: multiply each fraction by 360°:

Angle of pie slice for A =

6
25
× 360° = 0.24 × 360° = 86.4°

Angle of pie slice for B =

9
× 360° = 0.36 × 360° = 129.6°
25

Angle of pie slice for C =

3
25
× 360° = 0.12 × 360° = 43.2°

Angle of pie slice for D =

7
25
× 360° = 0.28 × 360° = 100.8°

(Check the sum of the angles: 86.4° + 129.6° + 43.2° + 100.8° = 360°)

Essential Maths Skills for AS/A-level Economics 30

 Step 4:

Contribution to total sales revenue

Product A
Product D £120 000
£140 000 24%
28%

Product C
£60 000 Product B
12% £180 000
36%

Figure A.3

Practice questions (p.55)

3 a On the line graph, read off the value from the cross at 1988 (a cross indicates that
this was the actual data collected in 1988).
The percentage change in real GDP in 1988 was 5%.
b The percentage change in real GDP in 1991 was approximately −1.5% (notice that
the cross lies below the x-axis, i.e. in the negative section of the y-axis).
c The points plotted record the growth rate over 10 years. The average, or mean,
growth rate for this period is obtained by adding up these 10 growth rates and then
dividing the total by 10. This would give approximately 2.5.
4 a Looking at the red bar for the UK, the unemployment rate across the UK as a
whole, for January–March 2015, was 5.5%.
b Comparing the red bars, the North East had the highest unemployment rate in this
period, at 7.5%.
c Looking at the red bar for the South East, the unemployment rate was
approximately 4.2% (a fifth of the way from 4 to 5 along the horizontal axis).
d It is the lowest regional unemployment rate during this period.
e Looking at the blue bar for Scotland, which extends to approximately +0.7, you
see that Scotland’s unemployment rate has risen since the last quarter (because the
percentage change on the previous quarter is positive), and the amount of increase
is about 0.7%.
f Looking at the blue bars, which represent percentage changes in unemployment
rate on the previous quarter, you see that for the majority of regions
unemployment has fallen since the previous quarter, because the bars extend in
the negative direction for most regions.

Essential Maths Skills for AS/A-level Economics 31

5 a Tesco had the biggest market share in January 2003, at 25.8%, representing the
largest ‘slice’ for a single supermarket in the pie chart.
b 28.4% is greater than 25.8%, so Tesco’s pie slice will be even bigger in March
2015 than in January 2003.
c In January 2003, Asda’s market share was 15.9%. This means that for every £100
spent in supermarkets, £15.90 was spent in Asda.

6 a 17
Total output

16

15

14

13

12

11

10

0
0 1 2 3 4 5 6 7 8 9 10 11
Number of workers

Figure A.4

b There is a positive, or direct, relationship up to the 9th worker employed, which

means that as the number of workers increases, the total output per week rises.
The rise is not at a steady rate, however — the extra output obtained by taking
on each additional worker becomes less and less as the total number of workers
increases. A maximum total output per week is reached with the 9th worker, and
then total output per week falls when the number of workers exceeds 9.

Essential Maths Skills for AS/A-level Economics 32

6 Finance

Costs
Guided questions (p.60)
1 Using the formula ∆TC = MC × ∆Q:
■■ As the quantity increases from 0 to 3, you have
∆TC = £8 × (3 − 0) = £24
so TC = £20 + ΔTC = £20 + £24 = £44
■■ As the quantity increases from 3 to 6, you have
∆TC = £6 × (6 − 3) = £18
so TC = £44 + £18 = £62
■■ As the quantity increases from 6 to 9, you have
∆TC = £9 × (9 − 6) = £27
so TC = £62 + £27 = £89
The completed table is as follows:
Table A.6

Quantity MC TC
0 £20
£8
3 £44
£6
6 £62
£9
9 £89

2 AFC = TFC ÷ quantity = (£8.3 million) ÷ (2 million) = £4.15

Practice questions (p.61)

3 Using the marginal cost formula:
∆TC
MC =
∆Q
= £3400
(105 − 100)
£3400
=
5
= £680

Essential Maths Skills for AS/A-level Economics 33

4 TFC = £20 000, TVC = £54 000, Q = 100
a The total cost (TC) is the total fixed cost plus the total variable cost:
TC = TFC + TVC = £20 000 + £54 000 = £74 000
b The average costs are obtained from dividing the total costs by the quantity.
TFC £20000
i AFC = Q
= 100
= £200
TVC £54000
ii AVC = Q
= 100
= £540
iii There are two ways to calculate AC:
TC £74 000
AC = = = £740
Q 100
or
AC = AFC + AVC = £200 + £540 = £740

5 Use TC = TFC + TVC to calculate the entries in the TC column.

For Q = 1000: TC = £12 000 + £3000 = £15 000
For Q = 2000: TC = £12 000 + £3500 = £15 500
For Q = 3000: TC = £12 000 + £3800 = £15 800
Use AC = TC ÷ Q to calculate the entries in the AC column.
For Q = 1000: AC = £15 000 ÷ 1000 = £15
For Q = 2000: AC = £15 500 ÷ 2000 = £7.75
For Q = 3000: AC = £15 800 ÷ 3000 = £5.27 (to the nearest pence)
The completed table is as follows:
Table A.7

Quantity TFC TVC TC AC

1 000 £12 000 £3 000 £15 000 £15
2 000 £12 000 £3 500 £15 500 £7.75
3 000 £12 000 £3 800 £15 800 £5.27

Hence the average cost is falling over the output range 1000 to 3000.
∆TC
6 Use the formula MC = ∆Q to calculate the marginal cost for each increase in
quantity.
£25 − £20
As the quantity increases from 0 to 1, MC = (1 − 0)
= £5
£29 − £25
As the quantity increases from 1 to 2, MC = (2 − 1)
= £4
£31 − £29
As the quantity increases from 2 to 3, MC = (3 − 2)
= £2
£38 − £31
As the quantity increases from 3 to 4, MC = (4 − 3)
= £7

Essential Maths Skills for AS/A-level Economics 34

 The completed table is as follows:
Table A.8

Quantity TC MC
0 £20
£5
1 £25
£4
2 £29
£2
3 £31
£7
4 £38

Therefore upon addition of the fourth unit, the marginal cost rises and so diminishing
marginal returns set in.
7 a Total cost (TC) is calculated as average cost (AC) multiplied by quantity.
For 60 units: TC = £12 × 60 = £720
For 150 units: TC = £8 × 150 = £1200
∆TC
b Using the formula MC = ∆Q
:

£1200 − £720 £480

MC = = = £5.33
150 − 60 90

Revenue
Guided questions (p.65)
1 a The original total revenue was £10 × 25 = £250
b Step 1 and Step 2:
%∆ quantity demanded = PED × %∆ price
= ( −2.0) × ( −10%)
= +20%
Step 3:
 %∆ quantity demanded 
new quantity = original quantity ×  1 + 
 100
 20 
= 25 ×  1 +
 100 
= 25 × 1.2 = 30
Step 4: new total revenue = new price × new quantity = £9 × 30 = £270
c Using the figures calculated in parts a and b:
∆TR
MR =
∆Q
(£270 − £250)
=
(30 − 25)
£20
= = £4
5

Essential Maths Skills for AS/A-level Economics 35

2 When the firm is maximising profit, it is selling 325 seats at £50 each, so
total revenue = £50 × 325 = £16 250
Revenue maximisation occurs when marginal revenue (MR) is zero.
At this point:
■■ the number of seats sold is 600
(where the MR graph line reaches the horizontal axis)
■■ the price of each seat is £40
(the value of the AR graph line at this quantity)
■■ so total revenue is £40 × 600 = £24 000
Therefore the increase in total revenue is
£24 000 − £16 250 = £7750

Practice questions (p.67)

3 Using the average revenue formula:
total revenue
AR =
quantity
£249 750
=
25000
= £9.99
4 a A, B and C are total revenue values, and can be calculated using the formula
total revenue = price (AR) × quantity

■■ A = $7.50 × 5 = $37.50
■■ B = $7.50 × 10 = $75
■■ C = $7.50 × 15 = $112.50
D and E are marginal revenue values, and can be calculated using the formula
change in total revenue ∆TR
MR = =
change in quantity ∆Q
($75 − $37.50) $37.50
■■ D = (10 − 5 )
= 5
= £7.50
($112.50 − $75) $37.50
■■ E = (15 − 10)
= 5
= £7.50

The completed table is as follows:

Table A.9

Quantity AR TR MR
5 $7.50 A = $37.50
D = $7.50
10 $7.50 B = $75
E = $7.50
15 $7.50 C = $112.50

b The firm is a price taker, because the average revenue (or price per unit of output)
is constant as quantity increases — the firm does not have the market power to
increase price above $7.50 as it is operating under perfect competition.

Essential Maths Skills for AS/A-level Economics 36

5 Tax revenue is calculated in the same way as total revenue (just replace ‘price’ with
‘tax’):
total tax revenue = tax per unit × quantity
Therefore the total tax revenue from takeaway burgers is
£0.70 × 1.5 million = £1.05 million
6 a Using the formula total revenue = price × quantity:
■■ old total revenue = £0.69 × 2000 = £1380
■■ new total revenue = £0.99 × 3500 = £3465
The increase in total revenue is the difference:
£3465 − £1380 = £2085
b Marginal revenue is given by
change in total revenue
MR =
change in quantity
£2085
=
3500 − 2000
= £1.39
7 a The price of each car is the average revenue, given by
total revenue
AR =
quantity
£850 million
Old car price = = £17 000
50 000
£1050 million
New car price = = £15000
70 000
b Marginal revenue is given by
change in total revenue
MR =
change in quantity
£1050 million − £850 million
=
70 000 − 50 000
£200 million
=
20 000
= £10 000
c Demand is price-elastic. Possible reasons include:
■■ When the price was cut there was an increase in total revenue.
■■ The quantity demanded must have increased more than proportionately to
compensate for the price cut, so that the total revenue still rose despite the
reduction in price.
■■ The marginal revenue was positive.
■■ This price change occurs in the upward-sloping portion of the total revenue
curve.

Essential Maths Skills for AS/A-level Economics 37

Profit
Guided questions (p.70)
1 a Total profit of first firm = £120 × 3700 = £444 000
Total profit of second firm = £1 235 000 − £989 500 = £245 500
b The first firm made more profit, and the difference was
£444 000 − £245 500 = £198 500
2 Step 1: total profit is maximised when marginal cost equals marginal revenue.
From Figure 6.7, MC = MR at quantity = 2500.
Step 2: at this profit-maximising quantity:
■■ AR = £3.00, so TR = AR × quantity = £3.00 × 2500 = £7500
■■ AC = £2.20, so TC = AC × quantity = £2.20 × 2500 = £5500
Step 3: total profit = TR − TC = £7500 − £5500 = £2000
An alternative way to calculate total profit is to multiply average profit by quantity.
The average profit is average revenue minus average cost, i.e. £3.00 − £2.20 = £0.80.
So total profit is £0.80 × 2500 = £2000.

Practice questions (p.71)

3 Rearrange the formula
total profit = total revenue − total cost
to
total revenue = total profit + total cost
Therefore the total revenue of the butcher was
£3375 + £23 450 = £26 825
change in total profit
4 Marginal profit =
change in quantity
£48 200 − £56 400
=
14 000 − 12 000
−£8200
=
2000
= −£4.10
5 This question involves using percentage change formulae to calculate profit figures.
a Here you need to find Barclays’ current profit, given its profit figure 6 months ago
and the percentage change, so use the formula
 percentage change 
new value = original value ×  1 + 
 100

Essential Maths Skills for AS/A-level Economics 38

 to get
 25 
Barclays’ current profit = £2.55 billion ×  1 +
 100 
= £2.55 billion × 1.25
= £3.19 billion (3 s.f.)
b Here you need to work out Sky’s profit last year, given its current profit and the
percentage change, so use the formula
 percentage change 
original value = new value ÷  1 + 
 100

to obtain
 18 
Sky’s profit last year = £1.8 billion ÷  1 +
 100 
= £1.8 billion ÷ 1.18
= £1.53 billion (3 s.f.)
6 For each theatre,
total profit = total revenue − total cost
Then calculate the average profit using the formula
total profit
average profit =
quantity
where ‘quantity’ is the number of tickets sold.
The Grand:
■■ Total profit = £1 120 050 − £645 000 = £475 050
£475 050
■■ Average profit = 55 200
= £8.61 (2 d.p.)

Smith & Jones:

■■ Total profit = £45 300 − £22 200 = £23 100
£23100
■■ Average profit = 3500
= £6.60

Theatre Company:
■■ Total profit = £115 205 − £55 600 = £59 605
£59605
■■ Average profit = 7820
= £7.62 (2 d.p.)

7 a Entries in the marginal revenue column are calculated using

change in total revenue ∆TR
MR = =
change in quantity ∆Q
Therefore the values are:
£450 − £0 £450
= = £45
10 − 0 10
£750 − £450 £300
= = £30
20 − 10 10
£900 − £750 £150
= = £15
30 − 20 10

Essential Maths Skills for AS/A-level Economics 39

 £900 − £900 £0
= = £0
40 − 30 10
The completed table is as follows:
Table A.10

Quantity Total revenue Marginal revenue Marginal cost

0   £0 £45 £8
10 £450
£30 £7
20 £750
30 £900 £15 £15
40 £900 £0 £20

b Profit is maximised when marginal revenue equals marginal cost. This occurs
over the output range 20 to 30.
8 Profit is maximised when marginal revenue equals marginal cost. This occurs at the
intersection of the MR line and the MC curve, where quantity = 32 000.
a At quantity = 32 000, AC = 5 and AR = 8.50. So
average profit = AR − AC = £8.50 − £5.00 = £3.50
b At quantity = 32 000, MR = MC (both are equal to £2), so
marginal profit = MR − MC = 0
c Total profit can be calculated in two ways:
total profit = total revenue − total cost
= (£8.50 × 32 000) − (£5.00 × 32 000)
= £272 000 − £160 000
= £112 000
or
total profit = average profit × quantity = £3.50 × 32 000 = £112 000

Essential Maths Skills for AS/A-level Economics 40

7 Written, graphical and numerical
information

Guided questions (p.75)

1 The correct choices of the words in brackets are shown in bold:
In January 2004 UK inflation was approximately 1.4%. By April 2008 it had
reached approximately 2.4%. Between January 2004 and March 2007 there was
a fairly steady upward trend in the inflation rate, despite a few small erratic
movements downwards in some months. Inflation reached a peak of 3.0% in
March 2007 during this period. From March 2007 there was then a sharp fall in
inflation to approximately 1.6% in August 2007. This was the most significant
decrease during the period, with inflation almost falling back to the January 2004
rate. After this, inflation rose steadily again.
2 Step 1: the price of oil in 2000 was approximately $30 per barrel. By 2013 the price of
oil had reached approximately $110 per barrel.
Step 2 and Step 3: over the period 2000–13 there was a general upward trend in the
price of oil.
Between 2007 and 2012 the price of oil was more volatile, exhibiting erratic swings.
Oil prices rose sharply in 2007 but quickly plummeted in 2008 and then rose sharply
again, seeming to peak in 2013.
Step 4: in contrast, between 2000 and 2007 there was a fairly consistent and steady
rise in oil prices.
3 Note: the growth rate has been plotted in the middle of each year marked on the
horizontal axis.
a The value on the y-axis corresponding to the year 1973 is approximately 7.5%.
b The year-to-year movements are very erratic, so it is difficult to spot a trend.
c Step 1: the value on the y-axis corresponding to the year 2009 is
approximately −5.5%.
Step 2: the growth rate is negative, so real GDP is falling.
Step 3: the size of the growth rate tells us that real GDP decreased by 5.5% relative
to the previous year.
Step 4: the growth in real GDP in 2009 was approximately −5.5%. This means
that real GDP fell during this year by approximately 5.5%.
d Step 1: between 2008 and 2009, the growth rate is decreasing and then becoming
negative. Therefore growth in real GDP was slowing in 2008, followed by a fall in
real GDP later in the period.
Step 2: this would suggest that aggregate demand is falling during this period, so
unemployment is likely to be rising (though in practice there may be a time lag
before this effect is observed).

Essential Maths Skills for AS/A-level Economics 41

4 Step 1: the financial item was the biggest component of the trade in services for both
1999 and 2014, in terms of the amount of money flow recorded.
Step 2: the financial item is also the only category of this country’s trade in
services that is a surplus item (with a positive sign) for both years. This means that
for both 1999 and 2014, overall money is coming in rather than going out for the
financial item.
Step 3: proportionately, the travel item has changed the most. The deficit on this item
increased by more than 10 times between 1999 and 2014, from 200 million zounds
to 2500 million zounds. (Note that while the financial item for 2014 has the largest
value, relative to the 1999 value it is only 2.25 times as big.)
Step 4: the communications item is the only one which changed from being a deficit
item to a surplus item (i.e. from a money-out item to a money-in item).

Practice questions (p.79)

5 a True. In year 1, the percentage rise in healthcare spending was 8%, compared with
a 4% rise in GDP.
b False. The percentage change in healthcare spending is positive in all 3 years,
which means that each year healthcare spending has risen. (Although the bars
are getting lower from year to year, this just means that the rate of increase
is slowing.)
c True. In year 1, healthcare spending rose at a faster rate (i.e. with a higher
percentage change) than GDP, so it must account for a higher proportion of GDP
than it did in the previous year.
d True. Year 2 is the only year with a negative percentage change in GDP, which
means that GDP was actually falling.
e True. The percentage increase in total healthcare spending was 8% in year 1, 5%
in year 2 and 3% in year 3, and these values are getting lower.
6 a Looking at the pie chart for country A, its government spends the highest
proportion on health (28%).
b Country B spends 18% on health, which is a lower proportion than in country A.
This is the second largest component of country B’s government spending. Its
greatest component is pensions.
c Country A spends a higher proportion on health than does country B (28%
compared to 18%). However, although the proportion is higher, if total government
spending in country A is considerably lower than in country B, then country A
could still be spending less money on health than country B. (A small slice of a
big cake might be larger than a big slice of a small cake!)
d Country B spends 13% on education, while country A spends 25% (a quarter of
its total government spending). If country B spends more money on education,
despite its lower proportion, this must mean that total government spending
in country B is significantly higher than in country A. Country A might be a
developing country and country B a developed one, for example.

Essential Maths Skills for AS/A-level Economics 42

 e Transport is the only component which has not been labelled with a number in the pie
charts. For each country, the percentages of all the components must add up to 100%.
So, for country A:
■■ Sum of labelled components = 5% + 6% + 25% + 28% + 5% + 5% + 7% +
16% = 97%
■■ Therefore transport accounts for 100% − 97% = 3% of total government
spending.
For country B:
■■ Sum of labelled components = 15% + 8% + 13% + 18% + 20% + 5% + 4% +
12% = 95%
■■ Therefore transport accounts for 100% − 95% = 5% of total government
spending.
7 a Over the past 10 years house price inflation has averaged 5%. This means that
house prices have risen over this period by an average of 5% every year. It may
be the case that house price movements have fluctuated, but the overall (average)
effect has been a rise. The latest data shows house price inflation at 2%, which
means that the rate at which house prices are rising is slowing down.
b Current house price inflation is 2%, which means that the percentage increase in
house prices from last year to this year is 2%.
Using the percentage change formula, as the average house price was £125 000
last year, the average house price now is
 2 
£125000 ×  1 +
 100 
= £125000 × 1.02
= £127 500
8 a Incorrect. In this statement the numbers 98 and 103 have no context — are they
in pounds, pence or some other unit? Examiners would give such a statement 0
marks. An example of an accurate statement would be ‘Theme park prices went
from an index number of 98 in 2009 to an index number of 103 in 2012’.
b Correct. Since the index number is 100 in 2010 (the base year), the percentage
change in price from 2010 to 2011 will just be the difference between the two
index numbers. Remember that this is true only if the comparison is being made
to the base year, for which the index number is always 100.
c Correct — this is exactly as shown in the table.
d Incorrect. Index numbers tell us only how the value of a particular variable is
changing over time in relative terms. So you know that leisure centre swimming
prices were 30% higher in 2012 than in 2010 but that theme park prices were only
3% higher in 2012 than in 2010. However, you do not have any information on
how actual theme park entrance fees compare with actual prices for swimming at
leisure centres.

Essential Maths Skills for AS/A-level Economics 43

e Incorrect. The difference between two index numbers only gives you the
percentage change if the comparison period is the base year, i.e. if one of the
index numbers is 100. In this case, neither of the index numbers is 100. The
index number for swimming prices increased from 110 to 130, so the price of
swimming actually increased by

130 − 110
× 100% = 18.2% (1 d.p.)
110

f Correct. The index number for theme park prices went down from 105 to 103, so
the percentage change in theme park prices was

103 − 105
× 100% = −1.9% (1 d.p.)
105

This represents a fall in price of 1.9%.

Essential Maths Skills for AS/A-level Economics 44

8 Further skills

Further analysis of time series data

Guided question (p.83)
1 Step 1: over the entire 10-year period, the number of part-time employees increased
from 3 million to 7 million. This is an absolute change of 4 million people and
represents a 133% increase (as 7−33 × 100% = 133% to the nearest per cent), which
means that the part-time employee population more than doubled.

Table A.11

Year 1 2 3 4 5 6 7 8 9 10
Number of
part-time
3 4.5 6 7.5 8.4 9 9 8.8 8.4 7
employees
(millions)
Change in
the number
of part-time
employees – +1.5 +1.5 +1.5 +0.9 +0.6 0 −0.2 −0.4 −1.4
from the
previous year
(millions)
% change in
the number
of part-time
– +50 +33.3 +25 +12 +7.1 0 −2.2 −4.5 −16.7
employees
from year to
year

Step 2: between years 1 and 4, the number of part-time employees rose at a constant
rate of 1.5 million per year. From year 4 to year 6, although the number of part-time
employees continued to rise, this rise was at a decreasing rate, i.e. slowing down:
between years 4 and 5, the number of part-time employees rose by only 0.9 million,
compared to the previous year-to-year change of 1.5 million, and between years 5 and 6
the absolute change fell further to 0.6 million. Between years 6 and 7, there was no
change in the number of part-time employees, which had reached a peak. After year 7
the number of part-time employees started to fall, and this reduction in numbers
occurred at an increasing rate as every year there was a sharper fall in number
compared to the previous year.
From year 1 to year 7 the growth rate in the number of part-time employees fell
consistently from year to year. This means that the number of part-time employees
increased by a smaller percentage each year, i.e. the growth rate was positive but
slowing down.

Essential Maths Skills for AS/A-level Economics 45

 After year 7 the growth rate became negative, indicating that the number of part-time
employees fell each year. Moreover, the percentage change from year to year was
increasing in size: between years 7 and 8 there was a relatively small decline of 2.2%,
but between years 9 and 10, the fall in the number of part-time employees was more
significant, at 16.7%.

Practice question (p.84)

2 In this question you focus on the portion of China’s graph line in Figure 5.6 between
the years 1980 and 2010.
(Note that from this graph it is not very straightforward to read off changes in CO2
emission levels every year. It is easier to read off the values every 4 years since these
years have been marked on the horizontal axis.)
In 1980, CO2 emissions for China were approximately 1.5 billion tonnes. By 2010
the level of CO2 emissions had reached approximately 8.5 billion tonnes. There is
clearly an upward trend in the level of emissions over this 30-year period. China was
emitting an extra 7 billion tonnes of CO2 in 2010 than it was back in 1980.
The speed of change in CO2 emissions varied considerably over this 30-year period.
From 1980 to 1996, CO2 emissions rose at a relatively low and approximately constant
rate: each year emissions increased by roughly the same amount, so that every 4 years
approximately an extra half a billion tonnes of CO2 was emitted. Between 1996 and
2002, CO2 emissions remained approximately constant at 3.5 billion tonnes each year.
However, between 2002 and 2003, emission levels began to rise at a significantly
increasing rate (i.e. started to accelerate sharply), then sustaining a higher constant
rate of change from 2003 onwards. From about 2003 onwards, for every 4-year
period, approximately an extra 2.5 billion tonnes of CO2 were being emitted.

Composite indicators
Guided question (p.85)
1 Step 1: the Human Development Index is a composite index that assigns equal weight
to three measures of development: health (in terms of life expectancy), education (in
terms of school enrolment and adult literacy) and gross national income (GNI) per
capita at purchasing power parity.
Step 2: it is possible for a country with a fairly low GNI per capita to be ranked
relatively high if its education and health aspects are high ranking. For example, a
developing country which has devoted a high proportion of its GDP to education and
health will see an increase in life expectancy and will score high on its education
measure. Therefore it may be ranked fairly high on the HDI despite having a low GNI
per head.

Practice questions (p.86)

2 The HDI does not include factors such as inequality, poverty rate, crime rate and
empowerment, which could affect the quality of life and development of a country.

Essential Maths Skills for AS/A-level Economics 46

3 a A composite indicator such as the Happy Planet Index provides a quick overview
of how a country compares with other countries or how the country is changing
over time with reference to a broad range of data. For example, by combining
various relevant economic measures, the Happy Planet Index attempts to capture
how well a country is performing in terms of providing long and happy lives for
its citizens in a sustainable way.
b Many high-income countries would score relatively low on the Happy Planet Index
if they had a large ecological footprint or if citizens gave relatively poor ratings to
their life satisfaction. (Life expectancy is unlikely to be low in such a country.)
c Although a low-income country might have a fairly good (i.e. small) ecological
footprint, high poverty levels and low life expectancy are likely to relegate such
countries to a low ranking on the Happy Planet Index.
d The Happy Planet Index is a useful starting point. However, there are many other
factors that could help analysts judge the sustainable quality of life for the citizens
of a country, e.g. human rights, income distribution, GDP per capita etc.

Seasonally adjusted figures

Guided questions (p.87)
1 a Credit card lending is short-term lending and is expected to rise during periods of
high consumption, such as in the run-up to Christmas.
The flow of credit card lending is likely to be higher in December than in
previous months, so the data would show a seasonal peak in December.
b Much casual labour is taken on in the tourism industry when demand is high,
which is during the summer season in the UK.
Employment in the UK tourism industry is likely to be higher in the summer than
in previous months, so the data would show a seasonal peak in summer.
c January is the ‘Christmas blues’ period, during which there is decreased flow in
credit card lending to individuals and reduced consumption.
Retail consumer spending is likely to be lower in January than in previous
months, so the data would show a seasonal trough in January.
2 a The seasonally adjusted data for the flow of credit card lending will be lower in
December than the non-adjusted data. This is because the seasonally adjusted
data has had the seasonal peak removed and shows the underlying flow of credit
card lending.
b The seasonally adjusted data for employment in the UK tourism industry will
be lower in the summer than the actual employment data. This is because the
seasonally adjusted data has had the seasonal peak removed and reflects the
underlying trend in UK tourism industry employment.
c The seasonally adjusted data for retail consumer spending will be higher in January
than the actual data. This is because the seasonally adjusted data has had the seasonal
trough removed and reflects the underlying level of retail consumer spending.

Essential Maths Skills for AS/A-level Economics 47

Practice question (p.88)
3 a Production of new private houses is likely to follow seasonal patterns because the
weather affects output in the construction industry.
b Construction of new private housing is likely to experience a seasonal trough in
December (and other winter months). This means that the seasonally adjusted
data, which has had the seasonal trough removed, will have higher values than the
actual data.
c The seasonally adjusted data in the bottom row of Table 8.3 helps to reveal the
underlying trend in new private housing construction. The figures suggest that
there is an upward trend in the number of new private houses built over time.
d The increase in housing construction between December 2012 and June 2013 is
not due to the time of year (because this increase is seen in the seasonally adjusted
figures), so it is not simply because the better weather in June is associated with
more house building. Additionally, the data is measured ‘at constant prices’, so
the price level rising over time due to inflation is also not relevant in this case.
Possible factors not related to seasonal effects or inflation might include improved
confidence, increased availability of mortgages, lower interest rates etc. These
factors will increase demand, which will induce supply to respond.

Essential Maths Skills for AS/A-level Economics 48

Exam-style questions

1 A
%∆ quantity supplied 3%
PES = = = +0.12
%∆ price 25%
1 mark awarded for the correct answer

2 D
(new value − original value)
%∆ quantity demanded of balls = × 100%
original value
(140 − 125)
= × 100% = 12%
125

(new value − original value)

%∆ price of rackets = × 100%
original value
(£45 − £50)
= × 100% = −10%
£50
%∆ quantity demanded of balls 12%
XED = = = −1.2
%∆ price of rackets −10%
1 mark awarded for the correct answer

3 D
∆TC £750 000 £750 000
MC = = = = £750
∆Q 3000 − 2000 1000
1 mark awarded for the correct answer

4 a A
%∆ quantity demanded 6%
YED = = = −0.75
%∆ income −8%
1 mark awarded for the correct answer

b ■ Board games are an inferior good.

■ This is because the YED (−0.75) is negative.
■ An inferior good is one for which demand rises as income falls and vice versa.
3 marks awarded: 1 for mentioning each of these points

5 B
(new value − original value)
percentage change = × 100
original value
(1.28 − 1.20)
= × 100 = 6.666… = 7 (to the nearest per cent)
1.20
1 mark awarded for the correct answer

Essential Maths Skills for AS/A-level Economics 49

6 A
index of comparison year 100
real value = × nominal value = × £2350 = £2166
index of current year 108.5
1 mark awarded for the correct answer
index number 48
7 a current figure = figure in base time period × = $115 × = $55.20
100 100
2 marks awarded: 1 for the working and 1 for the correct answer

b B 
Subtracting 100 (the base index) from the current year index gives the
percentage change:
48 − 100 = −52, which corresponds to a 52% decrease.
1 mark awarded for the correct answer

8 B is correct. There is an upward trend in the inflation rate and in the growth rate
(annual percentage change) of average earnings. Despite a few fluctuations, both
rates are rising over time and are higher by the end of the 5-year period than at the
beginning.
A is incorrect. The inflation rate represents the rate of growth in the price level over
one year. Between years 2 and 3 the inflation rate fell, but it remains positive, so the
price level is still rising (though with a lower percentage change in year 3 than in
year 2).
C is incorrect. Earnings are a cost for employers. The rate of growth in average
earnings is generally increasing over the period, and there is also an upward trend in
the inflation rate. This may suggest that rising costs are causing inflation to rise.
D is incorrect. The table provides no information about profits.

1 mark awarded for the correct answer

9 B is correct. Although the growth rate (percentage change) of GDP fell between
years 1 and 2, the growth rate in year 2 is still positive, which means that GDP is
continuing to rise in year 2.
A is incorrect. GDP was falling only in years 3 and 4, when the growth rate was
negative.
C is incorrect. In year 4 the growth rate is still negative, which means that GDP is
falling during this year.
D is incorrect. The table provides no information on the current account.

1 mark awarded for the correct answer

10 C is correct. Using the ratios below, it can be seen that for country A, every 1 tractor
produced involves sacrificing the production of 3 lorries (or every 3 lorries produced
involves sacrificing the production of 1 tractor).
Tractors : Lorries
Country A 20 : 60
Country B 15 : 30

Essential Maths Skills for AS/A-level Economics 50

 After dividing each ratio through by the number of tractors, you get
Tractors : Lorries
Country A 1 : 3
Country B 1 : 2
A is incorrect. For country A, the opportunity cost of producing 1 tractor is 3 lorries.
It is for country B that the opportunity cost of producing 1 tractor is 2 lorries.
B is incorrect. For country B, the opportunity cost of producing 1 lorry is half of a tractor.
D is incorrect. Country A has to sacrifice the production of 3 lorries to produce
1 tractor, whereas country B has to sacrifice the production of only 2 lorries to
produce 1 tractor. Therefore country B has the lower opportunity cost in the
production of tractors.

1 mark awarded for the correct answer

16.5
11 C is correct. 16.5% of $366 billion = × $366 billion ≈ $60 billion
100

A is incorrect. Norway did have the highest proportion of GDP collected as tax
revenue (26.8%). However, although 510 appears to be the largest number in the right-
hand column, note that it is in billions, whereas Japan’s number, 5.95, is in trillions
and so is bigger.
B is incorrect. Japan and Pakistan collected the same proportion of GDP as tax
revenue. However, Japan had a much higher GDP, so the total amount of tax collected
was higher in Japan than in Pakistan.
D is incorrect. You need to know the population of each country to calculate GDP per
head, and this information has not been provided.

1 mark awarded for the correct answer

12 a Two-firm concentration ratio: 39.2% + 23.5% = 62.7% = 63% (to the nearest
per cent)

2 marks awarded for the correct calculation, only 1 mark awarded if rounding
is inaccurate

b Four-firm concentration ratio = 39.2% + 23.5% + 20.6% + 15.7% = 99%

2 marks awarded for the correct calculation

13 Total taxes paid on a pint beer = £0.50 + £0.52 + £0.18 + £0.12 = £1.32
£1.32
× 100%
£3.10
= 42.58… %
= 43%
4 marks awarded: 1 mark for each of the 4 lines of working
4 marks awarded if correct answer given without working

Essential Maths Skills for AS/A-level Economics 51

14 a Inflation rate in May 2014 = % change from May 2013
(new value − original value)
= × 100%
original value
(128.0 − 126.1)
= × 100% = 1.51% (3 s.f.)
126.1
2 marks awarded for the correct calculation, only 1 mark awarded if rounding
is inaccurate

b Inflation rate in May 2015 = % change from May 2014

(new value − original value)
= × 100%
original value

(128.2 − 128.0)
= × 100% = 0.156% (3 s.f.)
128.0
2 marks awarded for the correct calculation, only 1 mark awarded if rounding
is inaccurate

15 a %∆ quantity demanded of bus journeys = PED × %∆ price = ( −0.4) × 5% = −2%

2 marks awarded for the correct answer, only 1 mark awarded if the sign
before the number in the answer is incorrect

b %∆ quantity demanded of bus journeys = XED × %∆ price of rail journeys

= ( +0.10) × ( −15%) = −1.5%

2 marks awarded for the correct answer, only 1 mark awarded if the sign
before the number in the answer is incorrect

16 Unemployment rate in North East − unemployment rate in London

134 000 354 000
= × 100% − × 100%
1300 000 4 370 000
= 10.30769… % − 8.10068… %
= 2.207 … %
= 2.21% (3 s.f.)
4 marks awarded: 1 mark for each of the 4 lines of working
4 marks awarded if correct answer given without working

17 The completed table is as follows.

Table A.12

Total Profit or Marginal

Quantity Price revenue loss Total cost cost
5 000 £25 £125 000 £75 000 £50 000
7.50
7 000 £20 £140 000 £75 000 £65 000
10
9 000 £15 £135 000 £50 000 £85 000
12.50
11 000 £10 £110 000 £0 £110 000
20
13 000 £5 £65 000 −£85 000 £150 000

Essential Maths Skills for AS/A-level Economics 52

 Example calculations:
■■ Total revenue = price × quantity = 5000 × £25 = £125 000
■■ Profit = total revenue − total cost = £125 000 − £50 000 = £75 000
■■ Total cost = previous TC + ∆TC = previous TC + (MC × ∆Q)
= £50 000 + (£7.50 × (7000 − 5000))
= £50 000 + £15000
= £65000
Sales maximisation occurs at £0 profit or where TR = TC. This is when 11 000 books
are sold.

4 marks awarded: 1 mark for total revenue column, 1 mark for profit or
loss column, 1 mark for total cost column, 1 mark for identification of sales-
maximising quantity
price on 5 September 2011
18 Index number on 5 September 2011 = × 100
price on 13 November 2008
$1900.05
= × 100
$700.57
= 271.2148…
= 271 (3 s.f.)
4 marks awarded: 1 mark for each of the 4 lines of working
4 marks awarded if correct answer given without working

19 Previous revenue = £5 × 10 000 = £50 000, so new revenue = £50 000 +

£14 000 = £64 000.
New quantity = £64 000 ÷ £4 = 16 000. Therefore %Δ quantity = +60%
%∆ quantity demanded
PED =
%∆ price
+60%
= = −3
−20%

4 marks awarded: 1 mark for each of the 4 lines of working

4 marks awarded if correct answer given without working

20 In your answer, make sure that some key terms are defined. For example, the table
shows ‘median gross weekly earnings’. If all full-time employees are ranked in order
of their weekly earnings, the ‘median’ refers to the earnings of the person in the
middle. ‘Gross’ means that these figures are earnings before tax and benefits.
Some main points that could be included in your comments:
■■ The table shows regional variations in gross weekly earnings for full-time
employees across the UK. Median gross weekly earnings were highest in London,
at £627, and lowest in the North East, at £436. This means median earnings in
London are nearly 1 12 times greater than median earnings in the North East.
■■ The median gross weekly earnings of full-time employees in London were
significantly higher than the median earnings in all the other regions. For
example, the London figure is 22% higher than that for the South East, which has
the second highest gross weekly earnings in the UK.

Essential Maths Skills for AS/A-level Economics 53

 ■■ The national median gross weekly earnings of full-time employees were £489 per
week. The median gross weekly earnings for full-time employees in London were
28% higher than the national median, whereas for the North East the figure was
11% lower than the national median.
■■ Ten regions had median gross weekly earnings of full-time employees below the
national median, with only two regions above the national median. This must
mean that the working population is heavily concentrated in these two regions.
5 marks awarded:
1 mark awarded for defining key terms
Up to 2 marks awarded for each point which identifies a key difference; marks
are not awarded where answers only list the median gross weekly earnings for
different regions without a concluding comparative comment. There must be
specific references to the data provided.
Up to 3 marks awarded for an answer (regardless of the number of points
made and definitions provided) which does not use the data, in any examples,
to show differences in relative terms — a good way to do this is to work out
percentages or ratio of earnings between regions.

21 Some significant points that could be included in your answer:

■■ The index of food prices and the index of ‘all other items’ prices were both higher
at the end of the period than at the beginning.
■■ The index of food prices and the index of ‘all other items’ prices both have year
1 as the base year (with index number = 100). In year 4 they both reached their
highest values of 112 and 107, respectively.
■■ The index of food prices increased by 12% over the 4-year period, whereas the
index of ‘all other items’ prices increased by 7%.
■■ The index of food prices increased every year, whereas the index of ‘all other
items’ prices fell between years 2 and 3, before rising again.
4 marks awarded:
Up to 2 marks awarded for each significant point of comparison if accurate
use of data is used to support the comparison identified. The unit of
measurement given needs to be accurate.
Only 1 mark awarded for each point of comparison if either no comparison is
made, but some use of accurate data is provided OR a comparison is made,
but only one piece of data is given when two are needed AND/OR no unit of
measurement is given AND/OR the unit of measurement is inaccurate.
Examiners will not award any marks for statements that food prices are higher
than ‘all other items’ prices for most of the period. Remember that index
numbers only show how prices have changed over time, in relative terms. They
do not provide any information about what the prices actually are in terms of
monetary value. Index numbers have no units, but any reference to them must
refer to the particular type of index or to percentage changes.

Essential Maths Skills for AS/A-level Economics 54

22 Over the period as a whole, the value of the pound against the Deutschmark (i.e.
the number of Deutschmarks per pound — DM/£) followed a downward trend. In
January 1987 the value stood at 2.8 DM/£, and by January 1996 this had fallen to
approximately 2.2 DM/£.
However, there were many fluctuations, i.e. quite a lot of volatility, in the exchange
rate over this period. For example, between January 1987 and January 1989 the value
rose, reaching a peak of around 3.2 DM/£, but this was followed by a fairly sharp fall
to 2.8 DM/£ by January 1990.
During the ERM period, the exchange rate was fairly stable at about 2.9 DM/£. Then
it fell rapidly to approximately 2.4 DM/£ upon exit of the ERM. There were some
slight erratic movements after this period.

2 marks awarded: 1 mark for reference to downward trend and 1 mark for
some reference to volatility
A clear reference to data from the graph must be made — only 1 mark
awarded if there is no reference to specific figures

23 Ratio of average household income of top quintile to bottom quintile:

top quintile : bottom quintile
Original income £80 803 : £5521
simplifies to 14.6 : 1 (after dividing both sides by 5521)
approximately 15 : 1
Final income £60 027 : £15 504
simplifies to 3.9 : 1 (after dividing both sides by 15 504)
approximately 4 : 1
■■ In 2013–14, the poorest 20% of households (in terms of income) had an average
original income of £5521 per year, while the richest 20% of households had
an average original income of £80 803. In other words, the richest 20% had a
household income approximately 15 times higher than the poorest. However, this
is income before the impact of taxation and benefits.
■■ Once benefits (which add to low incomes) and taxation (which is taken out
of income) have been taken into account, the income distribution narrows
considerably. The top quintile now has an average income which is only
approximately 4 times bigger than the bottom quintile.
■■ The bottom, 2nd and 3rd quintile groups are better off after the tax/benefit effects,
whereas the 4th and top quintile groups are worse off after the tax/benefit effects.
4 marks awarded:
4 marks awarded if there is a clear understanding that the impact of taxes
and benefits has been a narrowing of income distribution AND/OR income
distribution has become more equal AND there is clear supporting evidence,
using the data in the question. There should be a clear reference to the data
provided, e.g. actual income levels in the table or after some manipulation of
them. For example, the last bullet point needs some reference to actual income
figures for full marks to be awarded (provided reference has been made to a
fall in inequality/narrowing of income distribution)
A maximum of 2 marks awarded for a limited explanation

Essential Maths Skills for AS/A-level Economics 55