Calculate the price elasticity of demand (PED) for GBS's gravel product when the price decreased from $90 to $81 per tonne.

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [4] (a) -2.5 (Correct answer with or without working)
2. [3] (a) 2.5 (Negative sign not included) OR All three of following stated: Equation for PED (% Change in Qd / % Change in P), Percentage change in demand (25%), Percentage change in price (-10%)
3. [2] (a) Two of the following: Equation for PED, Percentage change in demand (25%), Percentage change in price (-10%)
4. [1] (a) One of the following: Equation for PED, Percentage change in demand (600/2400 × 100 = 25%), Percentage change in price (-9/90 X 100 = -10%)
5. [K] (b) Explanation of different elasticities (price, income, promotional) and how they relate to marketing decisions (e.g., price changes affecting demand/revenue, promotion affecting demand/profit, product/place changes affecting PED).
6. [APP] (b) Application points: GBS extracts and distributes sand/gravel, given data of 10% price decrease leading to 25% demand increase, GBS considers price cuts, 25% promo expenditure increase estimates 27.5% demand increase, building trade journal as info source, 8% GDP increase in country Q, government help for construction, GBS gravel PED is -2.5 (price elastic), industry YED is 1.8 (income elastic), PrEd is 1.1 (promotion elastic).
7. [AN] (b) Outdated trade journal data may lead to inaccurate elasticity figures.
8. [AN] (b) Price elastic demand for gravel supports price reduction to achieve a more than proportionate increase in demand and revenue.
9. [AN] (b) Promotional elasticity supports increased promotion spending to meet GBS's growth objectives.
10. [AN] (b) Rising GDP and positive YED suggest demand will grow without GBS needing to cut prices or increase promotion to meet growth objectives.
11. [AN] (b) High YED for luxury homes implies GBS could benefit from higher-value products as GDP rises.
12. [AN] (b) Competitor reactions to any cut in price made by GBS will impact the accuracy of the estimate of PED.
13. [EVAL] (b) Table 1.2 data is specific to gravel and only one product, so it's a limited input for overall marketing strategy.
14. [EVAL] (b) While PED suggests price drops increase demand, the effect on profits depends on production costs.
15. [EVAL] (b) Income elasticity indicates demand growth independent of price/promotion, which GBS should factor into planning.
16. [EVAL] (b) These insights depend on GBS's products facing the same market conditions as general industry gravels.
17. [EVAL] (b) Sand products lack market information, though likely to be influenced by income in a similar way to gravel products as construction industry demand grows.
18. [EVAL] (b) Marketing strategy is much wider than just considering elasticities and GBS should use other tools and indicators when deciding on an overall strategy.