| Date | November 2019 | Marks available | 10 | Reference code | 19N.1.SL.TZ0.1 |
| Level | Standard level | Paper | Paper 1 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 1 | Adapted from | N/A |
Question
Explain two reasons why the demand for manufactured goods might be price elastic.
Evaluate the importance of cross price elasticity of demand for a business selling a good if the price of a related good increases.
Markscheme
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.
Answers may include:
- definitions of PED, price elastic, demand
- diagram to show a relatively elastic demand curve, elastic section on a demand curve
- explanation of two determinants of the elastic demand of manufactured goods, including: the number and closeness of substitutes, the degree of luxury/necessity, time and the proportion of income spent on the good
- examples of manufactured goods with a relatively price elastic demand.
NB Candidates who only explain one reason should not be awarded marks beyond level 2.
PLEASE NOTE: This question part is not on the syllabus for first teaching 2020/first exams 2022.
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definition of cross price elasticity of demand (XED)
- diagram to show the significance of XED on the shift in demand that results from any change in price
- explanation of the impact of XED on businesses if the price of complements and substitutes for a good they produce changes in terms of price, quantity, revenue and profit
- examples of products that have substitutes and complements
- synthesis or evaluation.
Evaluation may include: the relative size of XED and the extent to which the revenue and profit will rise or fall; the assumption that other factors affecting demand remain constant and that XED is difficult to predict and measure.
