Refer to lines 71–74. Calculate the:

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. XED = % change in quantity of good A / % change in price of good B
2. (1 mark if no relevant calculation)
3. XED = -8 / -20 (1) allow 8 / 20 (1)
4. XED = 0.4 (2)
5. Other answers
6. -0.4 (1)
7. Content
8. Revenue = price × quantity (1 mark if no relevant calculation)
9. PED = % change quantity / % change price
10. Or % change in quantity = PED × % change in price (1 mark if no relevant calculation)
11. New price is: 140 – 10% = ($)126 (1)
12. % change in quantity given that PED = −1.2 is:
13. -1.2 × -10 = 12% (1)
14. new quantity = 40 000 × 1.12 = 44 800 (2)
15. revenue = 44 800 × 126 (4)
16. = $5 644 800 OR 5644 800 (5)
17. 126 × 40 000 = ($)5 040 000 (3)
18. 126 × 50 000 = ($)6 300 000 (3)
19. Answer based on 126 × by any quantity = (3) [on basis that calculating quantity correctly was awarded 2 marks]
20. OFR
21. Knowledge
22. Definition of elasticity
23. Elasticity measures the responsiveness of Qd or Qs to a change in one of its determinants.
24. PED measures responsiveness of Qd to change in price.
25. XED measures responsiveness of Qd to change in price of another product.
26. PrED measure responsiveness of Qd to change in promotional spending.
27. Definition of marketing strategy: coordinated marketing mix to achieve marketing objectives. Includes 4Ps and marketing budget.
28. Application
29. Competition from Hippo Barrel which is $20 cheaper than the Hydrocamel.
30. Demand estimated to be price elastic -1.2 i.e. sensitive to change in price
31. Cross price elasticity is inelastic 0.4 (i.e. goods are substitutes)
32. Use of answer to Q2(a) (OFR)
33. Revenue without price reduction would be $5.6m.
34. Increase in revenue of $44 800.
35. New price of $126.
36. Promotional elasticity estimated to be elastic/responsive 1.3.
37. Promotional elasticity linked to changing current promotional budget of $10 000.
38. Comment on current promotion through specialist magazines and direct selling.
39. Analysis
40. Reducing price will result in an increase in quantity demanded if estimate of PED is correct and therefore revenue will increase.
41. PED suggests that, other things being equal, a decrease in price will result in a marginal increase in revenue. This can be used to help make pricing decisions as it will help to demonstrate whether profit will also increase.
42. XED indicates that demand for Hydrocamel is not sensitive to change in price of competitor product, so WTZ has some control over pricing.
43. PrED is elastic, therefore an increase in promotional expenditure will lead to a more than proportionate increase in revenue, suggesting that greater advertising is worthwhile.
44. 20.83% reduction in price is required to achieve sales of 50 000 units, assuming that PED is -1.2
45. 19.2% increase in promotion could raise sales to 50 000 units assuming PrED is 1.3. This would only be an extra $1923 of promotional spending.
46. Evaluation
47. Judgement of the usefulness of elasticity to marketing planning.
48. Elements that the evaluation/judgement might depend on:
49. Decisions of competitors will affect the impact of any price change made by WTZ.
50. Accuracy of the elasticity estimates.
51. Significance of other factors that may also influence the marketing strategy such as operations and human resource.
52. Marketing strategy depends on effective market research to identify needs of customers and determine how best to appeal to them.