IB Economics SL 2.5 Elasticities of Demand Question Bank

price inelastic (paragraph 6). ..... [2 marks]
level
0 Wrong definition ..... 0
1 Vague definition ..... 1

The idea that quantity (demanded) is not very responsive to price.
2 Precise definition ..... 2
An explanation of any one of the following:

- a change in the price of a product leads to a proportionately smaller

change in the quantity (demanded)
- PED is less than 1
- \% change in quantity (demanded) is less than \% change in price.

Level

0 The work does not reach a standard described by the descriptors below.

1 There is a correct diagram or an accurate written response.

For drawing a correctly labelled diagram showing a demand curve, with a price increase and a decrease in quantity, and revenue boxes showing an increase in export revenue or for an explanation that since these firms produce goods with few substitutes, the demand is inelastic, and so when price increases due to appreciation, the total revenue increases.

2 There is a correct diagram and an accurate written response. For drawing a correctly labelled diagram showing a demand curve, with a price increase and a decrease in quantity, and revenue boxes showing an increase in export revenue and for an explanation that since these firms produce goods with few substitutes, the demand is inelastic, and so when price increases due to appreciation, the total revenue increases.

Candidates may explain that the demand is unit elastic and so when the price increases due to appreciation, the total revenue will remain the same ("no reduction in export revenue"). If the diagram is also correct, this approach may be fully rewarded.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The use of P and Q is sufficient for a demand and supply diagram. A title is not necessary.

s may include:

- definition of PED

- diagram to illustrate the impact of PED on government intervention

- theory to explain the relevance of PED for government in terms of decision making regarding taxes, subsidies and price controls

- examples of use of the concept of PED in practice

- synthesis or evaluation (discuss) to show the implications.

Discussion may include: the relative importance of PED and the difficulties of obtaining an accurate measure in reality; a consideration of the impact on different stakeholders, producers, consumers, taxpayers, etc.

Level 4 can be awarded if there has been a consideration of just one of taxes, subsidies or price controls providing there is a comparison of elastic and inelastic demand.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Opinions or conclusions should be presented clearly and should be supported by appropriate examples.

Assessment Criteria
Part (b) 15 marks

Level 0 (0 marks): The work does not reach a standard described by the descriptors below.

Level 1 (1-5 marks): There is little understanding of the specific demands of the question. Relevant economic terms are not defined. There is very little knowledge of relevant economic theory. There are significant errors.

Level 2 (6-9 marks): There is some understanding of the specific demands of the question. Some relevant economic terms are defined. There is some knowledge of relevant economic theory. There are some errors.

Level 3 (10-12 marks): There is understanding of the specific demands of the question. Relevant economic terms are defined. Relevant economic theory is explained and applied. Where appropriate, diagrams are included and applied. Where appropriate, examples are used. There is an attempt at synthesis or evaluation. There are few errors.

Level 4 (13-15 marks): There is clear understanding of the specific demands of the question. Relevant economic terms are clearly defined. Relevant economic theory is clearly explained and applied. Where appropriate, diagrams are included and applied effectively. Where appropriate, examples are used effectively. There is evidence of appropriate synthesis or evaluation. There are no significant errors.