Mark Scheme Q4 Microeconomics

4.
(a) Explain two reasons why the demand for primary goods might be price
inelastic. [10 marks]
Responses might include the following:
A definition of primary goods and price elasticity
A suitable diagram, illustrating a good with low
PED inelasticity, an example is included in the
diagram.
A recognition that PED elasticity is determined by

two of the following factors:
• whether a good / service is a necessity or a

luxury item?
• the number of substitutes or compliments
that the product has?
• whether the good is low or high priced?
• the % of a consumer’s income allocated to
spending on the good
• the cost of switching between products
• the strength of the brand loyalty to a product.
Each of the determinants needs to then be related to primary goods e.g. many primary goods
such as food, commodities e.t.c. are basic necessities tend to be PED inelastic.
A number of primary goods are also specific raw materials used in the production process of
a manufactured good and cannot easily be switched to another material.
© Mark Johnson,
InThinking www.thinkib.net/Economics 1
Responses for section (a) should be graded according to the following mark bands:
Maximum mark for this section 10.
Criteria Mark
There is no clear answer to the question but some limited: 1-2
• Use of economic terms - primary goods, PED elasticity
• Application of economic theory
• Use of diagrams
There is a vague answer to the question with limited: 3-4
• Application of economic theory
• Use of diagrams
There is an answer to the question with satisfactory: 5-6
• Application of economic theory - why primary goods maybe PED
inelastic, but any theory maybe applied superficially
• Use of diagrams
There is a clear answer to the question with good: 7-8
inelastic
• Appropriate examples are used which helps support the rest of the
response. These are applied to the demands of the question
• Use of diagrams
There is clear answer to the question with excellent: 9-10
inelastic
• Appropriate examples are used which helps support the rest of the
response. These are skilfully applied to the demands of the question
• Use of diagrams
© Mark Johnson,
b. Using real world examples, evaluate the importance of income elasticity of demand
for a business selling a good if incomes are rising. [15 marks]
Command term: Evaluate requires candidates to provide an effective and balanced review
of the relevant arguments and judge the significance of each.
Real-world issue 1- how do consumers and producers make choices in trying to meet their
economic objectives?
Responses should include the following:
Term(s) to define: Income elasticity of demand (YED)
Two relevant diagrams to illustrate goods with high / low YED elasticity. Below are two
examples of YED diagrams, the first illustrating a good with high YED elasticity and the
second a product with low YED elasticity.
An explanation that the above diagrams illustrate the impact of different YEDs on the goods
and services they represent. For example, on both diagrams the level of income has risen
from Y1 to Y2, as a business should expect as the world economy grows. This presents an
opportunity for the producer of the YED elastic good, as demand for their products is likely
to grow more than proportionately to the change income.
For the producer of primary goods there is significantly less opportunity as demand for their
products rises only slightly in times of world economic growth.
On the other hand, in times of sluggish economic activity, such as the financial crisis of 2007
- 2010, the producers of primary products are less likely to be affected than businesses
producing luxury manufactured goods or services. Examples might include the UK and USA
whose financial services industries were decimated by falling income levels between 2007
and 2010, causing recession in both nations and forced the governments of the USA and UK
© Mark Johnson,
to provide bail outs for their financial services industry, condemning each nation to a
significant budget deficit during this period.
Responses may conclude with a recognition that the high YED of many luxury manufactured
products and services is a driver of economic growth in many Developed nations, where as
the low YED elasticity of many primary products acts as a drag on growth within many
LEDCs.
© Mark Johnson,
Criteria Mark
There is no clear answer to the question but some limited: 1-3
• Use of economic term: YED
• Application of economic theory - the significance of YED to firms when
incomes are rising
• Use of diagrams, evaluation and/or real examples
There is a limited answer to the question with limited: 4-6
incomes are rising
• Use of diagrams, evaluation and/or real examples
There is a satisfactory answer to the question with satisfactory: 7-9
incomes are rising
• Relevant economic theory is included in the response though some of the
examples and / or application maybe vague.
• Use of diagrams (s)
• Evaluation and real examples applied superficially
There is a good answer to the question with good: 10-12
incomes are rising
• The candidate includes balance in their response
• Use of diagrams, illustrating a YED diagram
• Evaluation and real examples applied to the question
There is an excellent answer to the question with excellent: 13-15
incomes are rising
• The response is both balanced and detailed.
• Use of diagrams, illustrating a YED diagram
• Evaluation and real examples applied skillfully to the question
• Any errors are minor and do not detract from the quality of the work
© Mark Johnson,

Mark Scheme Q4 Microeconomics

Uploaded by

Copyright:

Available Formats

Mark Scheme Q4 Microeconomics

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mark Scheme Q4 Microeconomics

Uploaded by

Copyright:

Available Formats

4.

A recognition that PED elasticity is determined by

• whether a good / service is a necessity or a

Maximum mark for this section 10.

Responses should include the following:

Term(s) to define: Income elasticity of demand (YED)

You might also like