Practise explaining why demand is more or less price elastic using substitutes, expenditure share, necessity and product context from data.
In the USA the price elasticity of demand for residential natural gas is -0.1 .
Explain one reason why the price elasticity of demand for residential natural gas is only -0.1 .
Knowledge 1, Application 1, Analysis 2
QS8: Make calculations of elasticity and interpret the result.
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.
Knowledge
1 mark for definition/understanding of inelastic demand e.g.:
- Inelastic demand is where a change in price will result in a smaller percentage/proportionate change in quantity demand
- PED value between 0 and -1 (1)
Application
1 mark for applying to the stem, e.g.:
- -0.1 means the PED is inelastic/demand is price inelastic/highly price inelastic/relatively price inelastic (1)
Analysis
Up to 2 marks for explaining one reason e.g.:
- There are few substitutes for natural gas (1) so even when price changes people will continue to demand natural gas (1)
- Consumers are reliant on the product/see the good as necessary (1) and would find it difficult to reduce consumption (1)
- Expenditure on natural gas is a small proportion of total expenditure/income (1) so an increase in price will not discourage consumers from buying (1)