Practise using PED, YED and XED to predict revenue, tax effectiveness and product demand and evaluating which coefficient is most useful under changing prices, income or…
Assess whether knowledge and understanding of price elasticity of demand (PED) or cross elasticity of demand (XED) is likely to be more useful to a producer of smartphones.
OR
Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.
AO1 and AO2 out of 8 marks. AO3 out of 4 marks.
Indicative content
Responses may include:
AO1 Knowledge and understanding and AO2 Analysis
- Analysis of the benefits of using PED for a smartphone producer e.g., for raising / decreasing the price to maximise revenue.
- Analysis of the limitations of the use of using PED e.g., the figures are only estimates and may change over time.
- Analysis of the benefits of using XED for a smartphone producer e.g., to determine whether it is a complement or a substitute for a product produced e.g., by a different business to enable it to react to competitor pricing decisions.
- Analysis of the limitations of using XED e.g., other factors may have a greater influence e.g., brand loyalty to a competitor.
If limitations of only one measure are analysed then L3 mid-point maximum. If only one measure is analysed or no reference to smartphone producers then L2 maximum.
AO3 Evaluation
- Assessment of whether PED or XED is more useful to the producer.
- Need to use other sources of information in decision-making - e.g., YED.
- Justified conclusion.
Marking guidance:
Accept all valid responses.
A one-sided response cannot gain any marks for evaluation.
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AO3 Evaluation
OR