Use indifference curve analysis to explain the derivation of an individual demand curve for a normal good.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. An explanation of indifference curves (IC) and the budget line (BL). Tangency of IC and BL. Change in price of one good shown by moving BL. Conversion of the price effect to a demand curve.
2. L4 (9-12 marks): For a sound explanation of equilibrium changing when the price on one good and BL changes to a new equilibrium. The conversion of this effect to an explicit drawing of the demand curve. Accurate diagrams.
3. L3 (7-8 marks): For an explanation of equilibrium changing when the price on one good and BL changes to a new equilibrium.
4. L2 (5-6 marks): For a limited explanation which shows the tangency of the IC and BL.
5. L1 (1-4 marks): For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial.
6. Income and substitution effects need to be explained and applied in the context of a falling price. The three alternatives: i) YE & SE are both positive and reinforce each other, ii) YE is negative & SE is positive but more than YE and iii) YE is negative but greater than SE are.
7. L4 (9-13 marks): For an answer which concentrates on either the fall in income, and impact on demand or the fall in price showing the movement of the BL and the impact on the quantity demanded. Discussion of the significance of the income effect and the substitution effects. Accurate diagrams. Max 11 if no conclusion.
8. L3 (7-8 marks): For an answer which concentrates on either the fall in income, and impact on demand and the fall in price showing the movement of the BL and the impact on the quantity demanded.
9. L2 (5-6 marks): For an answer which concentrates on either the fall in income, and impact on demand or the fall in price showing the movement of the BL and the impact on the quantity demanded.
10. L1 (1-4 marks): For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial.