Edexcel IGCSE Economics 1.1.4 Elasticity

[Maximum number: 2]

Calculate the percentage change in quantity demanded for a product if the price elasticity of demand (PED) is -1.9 and the price falls by 10%. You are advised to show your working.

AO2 2 marks

Award 1 mark for showing the correct calculation

$-10 \% \times-1.9$ (1)

Award 1 mark for correct change in quantity demanded = 19% (1)

Award 2 marks if the change in quantity demanded is correctly calculated as 19%, even if no calculations are shown

Award 1 mark if the change in quantity demanded is calculated as 19 , even if no calculations are shown

Do not award marks for a formula

[Maximum number: 2]

Alfie provides a dog-walking service to dog owners in his local area. After a successful first year he increased prices by 1.5% and quantity demanded fell by 1.1%.

Calculate, to two decimal places, the price elasticity of demand (PED) for Alfie's dog-walking service.

You are advised to show your working.

[Maximum number: 12]

(a)

Using the diagram below, draw a price elastic demand (PED) curve. Label the curve and show the impact on both axes from a change in price.

Figure 2

[ 3 ]

(b)

Many firms in Bangladesh produce textiles. In the factories, cotton shirts, knitwear and suits are produced. These factories are often operating below capacity.

About 40% of the Bangladeshi population is employed in the agricultural sector. Crops such as wheat, corn and fruit are produced annually by this sector.

With reference to the data above and your knowledge of economics, assess whether supply is likely to be more price elastic for textiles than for agricultural products.

[ 9 ]

Question
number

With reference to the data above and your knowledge of economics, assess whether supply is likely to be more price elastic for textiles than for agricultural products.

Indicative content

AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks)

AO2 and AO3

- Price elasticity of supply (PES) measures the responsiveness of supply to a change in price

- PES is affected by how quickly and easily supply can change when price changes

- A product has an elastic PES if the percentage change in supply is greater than the percentage change in price. The greater the difference, the more price elastic the supply of the product

- Supply of textiles does not depend on natural factors like the weather whereas it does for agricultural products, meaning it is easier to change supply of textiles in response to a change in price

- Agricultural products, such as fruit, are perishable as well as needing time to grow but textiles can be stored, meaning the supply of agricultural products is less likely to change in response to a change in price compared to the supply of textiles

- Supply of textiles is more price elastic because, unless you are operating at full capacity it is possible to work an extra shift and increase production

A04

- However, if operating at full capacity, it takes time and a range of machinery to produce textiles, making it more difficult to change production to respond to a change in price

- The cost involved when producing textiles means firms may not be able to afford to produce them to store. This may make the supply of textiles less price elastic

- It may depend on the growing conditions in Bangladesh whether the farmers can adjust growing in response to a change in price

- Supply of agricultural products might be more price inelastic in the short run but in the long run producers may be able to adjust techniques to respond to changes in price more quickly

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-3

- Demonstrates basic knowledge and understanding by developing relevant points. Limited application of economic terms, concepts, theories and calculations (AO2).

- Information presented will lack selectivity and organisation. Interpretation of economic information will be limited, with a lack of analysis of issues (AO3).

- Only offers one viewpoint, meaning there is an unbalanced and incomplete evaluation, showing limited understanding and awareness (AO4).

Level 2

4-6

- Demonstrates partial knowledge and understanding by developing relevant points. Partial application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate some selectivity and organisation. Interpretation of economic information will be good, with some analysis of issues (AO3).

- Offers more than one viewpoint but the argument may lack balance, leading to an evaluation that may not demonstrate full understanding and awareness (AO4).

Level 3

7-9

- Demonstrates clear knowledge and understanding by developing relevant points. Appropriate application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate excellent selectivity and organisation. Interpretation of economic information will be excellent, with a thorough analysis of issues (AO3).

- Offers more than one viewpoint. The argument is well balanced and coherent, leading to an evaluation that demonstrates full understanding and awareness (AO4).

[Maximum number: 3]

Using the diagram below, draw a price elastic demand (PED) curve. Label the curve and show the impact on both axes from a change in price.

Figure 2

[Maximum number: 1]

Which one of the following products has a price inelastic demand?

Product

Price elasticity of demand (PED)

W

-1.5

X

-1

Y

-0.5

Z

1

[Maximum number: 3]

Concert tickets to see the most popular music artists can sell for very high prices.

Explain one reason why the demand for these tickets might be price inelastic.

[Maximum number: 2]

Figure 6 shows financial data for a firm selling a selection of products.

Figure 6

Calculate the total revenue for the product that has a price elasticity of demand (PED) which is inelastic.

You are advised to show your working.

A02 2 marks

Award 1 mark for selecting product X (1)

Award 1 mark for correct total revenue $\$ 3000 \times 50=\$ 150000$ (1)

Award 2 marks if total revenue is accurately calculated as $ 150000, even if no calculations are shown

Award 1 mark if the answer given is 150000, even if no calculations are shown

Do not award marks for a formula

[Maximum number: 1]

State the formula for price elasticity of supply (PES).

[Maximum number: 2]

A firm increases supply by 4.3% following a price increase of 3.7%.

Calculate, to two decimal places, the price elasticity of supply (PES) for the firm. You are advised to show your working.

[Maximum number: 3]

Draw a supply curve on the diagram below that has price elastic supply (PES). Label the impact of a price change from $\mathrm{P}_{1}$ to $\mathrm{P}_{2}$ and its impact on quantity from $\mathrm{Q}_{1}$ to $\mathrm{Q}_{2}$ .

Every year in the UK, heavy rainfall is a cause of severe flooding in some areas. Calderdale in Yorkshire has been badly affected for a number of years. Increased water levels from the River Calder caused damage to residential properties, business premises and roads. The UK Government provided a $£ 32 \mathrm{~m}$ flood defence scheme to try to reduce the problem.
(Source adapted from: https://www.halifaxcourier.co.uk/news/politics/ps44m-to-be-spent-

on-flood-defences-in-hebden-bridge-3327606)

A02 3 marks

Award 1 mark for drawing elastic supply curve, labelled

Award 1 mark for showing smaller price change from $\mathrm{P}_{1}$ to $\mathrm{P}_{2}$ on the axis

Award 1 mark for showing a greater change in the quantity $\mathrm{Q}_{1}$ to $\mathrm{Q}_{2}$ on the axis

Figure for Answer to Question 10 — Edexcel IGCSE Economics

Quantity

Question
number

With reference to the data above and your knowledge of economics, analyse why the UK Government might provide flood defences.

Indicative content

[Maximum number: 1]

Which one of the following values shows perfectly price inelastic supply?

A

0

B

0.5

C

1

D

2

[Maximum number: 1]

State one factor that would affect price elasticity of supply (PES).

[Maximum number: 9]

Many firms in Bangladesh produce textiles. In the factories, cotton shirts, knitwear and suits are produced. These factories are often operating below capacity.

About 40% of the Bangladeshi population is employed in the agricultural sector. Crops such as wheat, corn and fruit are produced annually by this sector.

With reference to the data above and your knowledge of economics, assess whether supply is likely to be more price elastic for textiles than for agricultural products.

Question
number

With reference to the data above and your knowledge of economics, assess whether supply is likely to be more price elastic for textiles than for agricultural products.

Indicative content

AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks)

AO2 and AO3

- Price elasticity of supply (PES) measures the responsiveness of supply to a change in price

- PES is affected by how quickly and easily supply can change when price changes

- A product has an elastic PES if the percentage change in supply is greater than the percentage change in price. The greater the difference, the more price elastic the supply of the product

- Supply of textiles does not depend on natural factors like the weather whereas it does for agricultural products, meaning it is easier to change supply of textiles in response to a change in price

- Agricultural products, such as fruit, are perishable as well as needing time to grow but textiles can be stored, meaning the supply of agricultural products is less likely to change in response to a change in price compared to the supply of textiles

- Supply of textiles is more price elastic because, unless you are operating at full capacity it is possible to work an extra shift and increase production

A04

- However, if operating at full capacity, it takes time and a range of machinery to produce textiles, making it more difficult to change production to respond to a change in price

- The cost involved when producing textiles means firms may not be able to afford to produce them to store. This may make the supply of textiles less price elastic

- It may depend on the growing conditions in Bangladesh whether the farmers can adjust growing in response to a change in price

- Supply of agricultural products might be more price inelastic in the short run but in the long run producers may be able to adjust techniques to respond to changes in price more quickly

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-3

- Demonstrates basic knowledge and understanding by developing relevant points. Limited application of economic terms, concepts, theories and calculations (AO2).

- Information presented will lack selectivity and organisation. Interpretation of economic information will be limited, with a lack of analysis of issues (AO3).

- Only offers one viewpoint, meaning there is an unbalanced and incomplete evaluation, showing limited understanding and awareness (AO4).

Level 2

4-6

- Demonstrates partial knowledge and understanding by developing relevant points. Partial application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate some selectivity and organisation. Interpretation of economic information will be good, with some analysis of issues (AO3).

- Offers more than one viewpoint but the argument may lack balance, leading to an evaluation that may not demonstrate full understanding and awareness (AO4).

Level 3

7-9

- Demonstrates clear knowledge and understanding by developing relevant points. Appropriate application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate excellent selectivity and organisation. Interpretation of economic information will be excellent, with a thorough analysis of issues (AO3).

- Offers more than one viewpoint. The argument is well balanced and coherent, leading to an evaluation that demonstrates full understanding and awareness (AO4).

[Maximum number: 2]

Calculate, to two decimal places, the income elasticity of demand (YED) for a good if income increases by 6.2% and quantity demanded increases by 1.7%. You are advised to show your working.

AO2 2 marks

Award 1 mark for showing correct calculation

$11 \% \div 7 \%(1)$

Award 1 mark for correct income elasticity of demand (YED) = 1.57 (1)

Award 2 marks if YED is correctly calculated as 1.57, even if no calculations are shown

Do not award marks for the formula

(2)

[Maximum number: 1]

When a firm increased its prices, many consumers stopped buying its products.

A product has an income elasticity of demand (YED) of -0.9

Which one of the following best describes the product?

A

A public good

B

A normal good

C

A luxury good

D

An inferior good

[Maximum number: 6]

Figure 6 shows the Production Possibility Curve (PPC) for an economy making consumer goods and capital goods.

Figure 6

Bulgaria has an extensive rail network. Many towns and cities are also accessible by bus. Both these methods of public transport are low priced. However, train travel is considered poor by European standards, with frequent train cancellations and a poor record of safety. Buses are often late and take a lot longer to reach their destination than if travelling by private car.

With reference to the data above and your knowledge of economics, analyse how income elasticity of demand (YED) may affect operators of public transport as incomes increase in Bulgaria.

Edexcel IGCSE Economics 1.1.4 Elasticity Questions

Exam points

Covered syllabus points

Covered syllabus points

Question 1

Question 2

Question 3

Question (a)

Question (b)

Question 4

Question 5

Question 6

Question 7

Question 8

Question 9

Question 10

Question 11

Question 12

Question 13

Question 14

Question 15

Question 16