Note that widgets and pidgets are imaginary products.
In the country of Burbia, the demand and supply of widgets are given by the functions
where Qd is the quantity demanded per month, Qs is the quantity supplied per month and P is the price per widget in dollars ($).
Explain two determinants of the price elasticity of demand (PED).
Level
Marks
0
The work does not meet a standard described by the descriptors below.
1
The written response is limited.
1-2
For providing one determinant without explanation, award a maximum of [1].
For providing two determinants without explanation or for providing one condition with explanation, award a maximum of [2].
2
The written response is accurate.
3-4
For providing one determinant without explanation and one determinant with explanation, award a maximum of [3]. For providing two determinants with explanation, award a maximum of [4].
Accurate explanations may include:
- degree of necessity - if a good is a necessity, then demand will be price inelastic as consumers will attempt to avoid reducing consumption, while any reduction is likely to be proportionately smaller than the change in price
- availability of close substitutes - if close substitutes are available, demand will be price elastic as an increase in the price of the product is likely to lead to consumers switching to alternatives, causing the quantity demanded (of the good) to decrease significantly
- proportion of income spent on the good - if the price represents a small proportion of income, demand will be price inelastic as a change in price will have little impact on the ability of the consumer to purchase the product
- time - consumers are more able to react to changes in price if they have more time, so demand is likely to be more price elastic in a longer time period
- any other reasonable response (provided it does not repeat the idea i.e. if luxuries and necessities are both explained, treat this as one point. Same rule applies for number of substitutes and availability of close substitutes).