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Date May 2021 Marks available 15 Reference code 21M.1.SL.TZ2.1
Level Standard level Paper Paper 1 Time zone Time zone 2
Command term Discuss Question number 1 Adapted from N/A

Question

Explain why the price elasticity of demand for primary commodities is often relatively low while the price elasticity of demand for manufactured goods is often relatively high.

[10]
a.

Discuss the importance of price elasticity of demand and cross price elasticity of demand for a firm’s decision making.

[15]
b.

Markscheme

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

Answers may include:

a.

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:

Discussion may include: the difficulty of obtaining reliable estimates in reality due to imperfect information, past data not necessarily being a guide to the future, the unreliability of consumer survey techniques, the problem of estimating variables that are not constant and the impact of factors other than the price of the good and the price of other goods.

Award a maximum of [9] if only PED or only XED is addressed.

b.

Examiners report

There were many good responses to this question with good explanations of the difference between the price elasticity of demand of primary commodities and manufactured goods, The best answers gave detailed coverage of how commodities are more likely to be necessity goods with relatively few substitutes compared to manufactured goods, which makes the demand for commodities relatively price inelastic. The best answers used effective real-world examples to illustrate the points made. 

a.

Many students produced good responses on how price and cross price elasticity of demand are important to firms in terms of changing price to increase revenues and responding to the price changes of related goods. Many candidates used effective diagrams and real-world examples to illustrate their answers. A weakness in answers was many candidates did not evaluate the points they made. A strong answer in this section would include discussion of the problems of measuring price and cross price elasticity of demand because the values change over time and any measurement of elasticity assumes that other factors affecting the demand for a good remain constant. 

b.

Syllabus sections

Last exams 2021 » Section 1: Microeconomics » 1.2 Elasticity » Cross price elasticity of demand (XED) » Applications of cross price elasticity of demand
Last exams 2021 » Section 1: Microeconomics » 1.2 Elasticity » Price elasticity of demand (PED) » Applications of price elasticity of demand
Last exams 2021 » Section 1: Microeconomics » 1.2 Elasticity » Cross price elasticity of demand (XED)
Last exams 2021 » Section 1: Microeconomics » 1.2 Elasticity » Price elasticity of demand (PED)
Last exams 2021 » Section 1: Microeconomics » 1.2 Elasticity
Last exams 2021 » Section 1: Microeconomics
Last exams 2021

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