IJC_H2_ECONS_P1_Suggested_Answers

PRELIMINARY EXAMIANTION SUGGESTED ANSWERS ECONOMICS UNIT @ INNOVA JUNIOR COLLEHE 1 IJC Preliminary Examination 2018 Paper 1 Question 1 Suggested Answers 2018 H2 Prelim Case Study Q1 (a) Explain why all the price elasticities of demand values in Table 1 are negative. Price elasticity of demand measur es the responsiveness of quantity demanded of a good to a change in the price of the good itself. The negative values of the price elastici ties of demand reflects the law of demand, which states that the price and quant ity demanded of a good are inversely related. For example, as the price of a good like fruit and vegetable changes, the quantity demand ed of fruit and vegetable will change in the opposite direction. Mark allocation Stating law of demand – 1 mark Explanation of inverse relationshi p between price and quantity demanded of a good – 1 mark Markers’ comments A large number of candidates accounted for the magnitude of PED instead of sign. Hence, many explained factors for PED < 1 instead of focusing on the law of demand as the reason gaining no credit for their explanation. [2] (b) With reference to Table 1, explain the impact on UK consumers’ spending on meat when there is (i) an increase in the price of meat, As the PED value of meat is less than 1, a given increase the price of meat will lead to a less than pr oportionate fall in quantity demanded of meat. Consumers spending on m eat, given by Price x Quantity, will increase as the increase in s pending due to increase in price will offset the fall in spending due to a fall in quantity demanded of meat. Mark allocation Explanation of meaning of PED value – 1 mark Explanation of link between incr ease in price and consumers’ spending – 1 mark Markers’ comments Quite a number wrongly argued that since an increase in the price of meat causes the quantity of meat consumed to fall, there will therefore be less spending on meat without the us e of the PED concept to consider which effe ct will be greater. Some others [2]

PRELIMINARY EXAMIANTION SUGGESTED ANSWERS ECONOMICS UNIT @ INNOVA JUNIOR COLLEHE 2 incorrectly apply the YED concept instead. There is also tendency to confuse a change in demand with a change in quantity demanded. (ii) a recession. As YED value of meat is positive, a recession, which results in a fall in income, will lead to a fall in t he demand of meat as well. Hence, the overall effect will be a fall in the consumer spending of meat as the price and quantity of meat consumed falls. Mark allocation Explanation of meaning of YED value – 1 mark Explanation of link between recessi on and consumers’ spending – 1 mark Markers’ comments Quite a number used the magnitude of YED instead of the sign. The link between fall in income and fall in demand for food was not made too. Therefore, th e impact on total expenditure is incorrectly explained. [2]