Explain why an increase in incomes over time may lead to an increase in demand for some goods but a decrease in demand for other goods.

The income elasticity of demand for primary commodities tends to be relatively low, while the income elasticity of demand for manufactured goods and services tends to be higher. Examine the likely effects of this for individual producers and for the economy as a whole.

Answers may include:

• definitions of demand, normal goods, inferior goods
• diagram(s) to show an increase in demand (rightward shift) for normal goods and a decrease in demand (leftward shift) for inferior goods
• explanation of these rightward and leftward shifts
• examples of normal and inferior goods.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definitions of income elasticity of demand (YED), primary, manufacturing and service sectors
• diagram(s) to show the significance of YED for primary goods, manufactured goods, and services using demand and supply diagrams
• explanation of how different values of YED (high and low) may affect the three main sectors of the economy
• examples of YED affecting the allocation of resources
• synthesis or evaluation (examine) of the significance of YED for individual producers and the economy as a whole.

Examination may include: the differences in YED in developed and less developed economies, the importance of YED at different stages of development, the values of YED may change over time, the relative growth rates of different economies and the impact on YEDs.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part B.