Edexcel IGCSE Economics 1.1.4.s significance of demand elasticities

Practise elasticity-significance questions by applying PED or YED to revenue, transport access, taxation and policy decisions.

[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.

AO2 (3 marks)/AO3 (3 marks)

AO2 and AO3

- By calculating YED, operators of public transport would be able to see the likely effect on demand following an increase in income

- Owing to the poor standard of rail travel and of buses often being late in Bulgaria, public transport may be an inferior good

- Inferior goods have a negative income elasticity of demand, meaning as incomes increase, demand decreases

- Therefore, an increase in income in Bulgaria is likely to lead to a fall in demand for bus and train travel as they switch to using private cars

- This means operators of public transport would lose custom due to incomes increasing

- Knowledge of YED would allow the operators to take action to improve quality/service according to the likely outcome of YED calculations

Level

Mark

Descriptor

0

No rewardable material.

Level
1

1-2

- 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).

Level
2

3-4

- 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).

Level
3

5-6

- 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).

Question
number

With reference to the data above and your knowledge of economics, evaluate the extent to which public sector investment may benefit the economy of Western Australia.

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1.1.4.s Business and government uses of demand elasticities question 1