EJC_H2_ECONS_Essay1_Suggested_ans_and_mark_scheme

1 EQ1 Toy building brick companies like Lego have increasingly switched away from using cheaper oil-based plastics to sustainable plant-based ones. Such a move will enhance their image, hence mitigating the effects of a pessimistic economic outlook. Additionally, parents are opting for mobile interactive ga mes as an avenue for imaginative play for their children. Discuss how the above might affect expenditure by consumers on toy building bricks and its related goods. [25] Introduction Consumer expenditure on goods and services can be derived by multiplying price by quantity consumed. Equilibrium price and quantity is determined by the demand and supply of the good or service. Changes in demand and supply can be caused by factors such as economic outlook and changes in taste and preferences. Such factors will lead to changes in consumer expenditure on toy building bricks as well as its related goods such as mobile interactive games and toy building bricks related guide books. Body P1: Switching from cheaper oil-based plastics to sustainable plant-based ones could lead to a fall in supply of toy building bricks thus affecting consumer expenditure. Sustainable plant-based plastic costs more than th e traditional oil-based ones. This switch will lead to a rise in cost of production for toy companies such as Lego. This means that the producer will need to receive a higher mi nimum amount of price for each corresponding unit in order to produce it. Producers such as Lego will reduce their supply thus causing a rise in equilibrium price and a fall in quantity. The change in expenditure will depend on the price elasticity of demand for toy building bricks. Price elasticity of demand (PED) measures the responsiveness of a change in quantity demand due to the change of the price of the good itself ceteris paribus. Due to the availability of many close substitutes such as other types of toys and games which helps develop imagination and creativity such as Playdoh and K’Nex, consumers are very responsive to the changes in price of toy building bricks. A rise in price will lead to a more than proportionat e fall in its quantity demanded. The fall in supply is represented by a leftward shift of the supply curve from So to S1. Consumer expenditure changes from area B+C to A+B. As the fall in expenditure (area C) due to the fall in quantity is greater than the rise in expenditure (area A) due to rise in price, consumer expenditure for toy building bricks will fall.

2 P2: The new environmental image of toy bui lding bricks and the pessimistic economic outlook will affect its demand thus affecting consumer expenditure. As consumers become more environmentally conscious, they tend to prefer to purchase more environmental friendly products such as toy building bricks made of sustainable plant-based plastics resulting in a rise in demand. This rise in demand however can b