Practise using elasticity formulae to calculate and interpret price, income and cross elasticities of demand with CAIE Economics AS questions.
With the help of a formula, explain what is meant by the income elasticity of demand for a product and consider the extent to which demand for the product will always rise at the same rate as the income of its consumers.
Follow the point-based marking guidance at the top of this mark scheme and award:
up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis
up to 2 marks for AO3 Evaluation.
AO1 Knowledge and Understanding (max 3 marks)
For an accurate formula of YED (1). For clear and accurate knowledge and explanation of what is meant by YED (1) including the difference between elastic and inelastic YED (1).
AO2 Analysis (max 3 marks)
For a clear understanding and explanation that this depends on the coefficient value of YED (1) and analysis of the different outcomes depending on whether the product is normal (positive coefficient) (1) or inferior (negative coefficient) (1).
AO3 Evaluation (max 2 marks)
For a considered evaluation of the possible outcomes (1) leading to a valid conclusion (1).
AO1 Knowledge and understanding
AO2 Analysis
AO3 Evaluation