Use indifference curves to distinguish between the income and substitution effects of a price change. Discuss whether the distinction might be important for a manufacturer.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [25] Explanation of indifference curves, income, substitution of a price change. These can then be related to a demand curve to show the effect on demand of a price change and determine the possible change in revenue, and maybe profits, depending on the type of good.
2. L4 for a reasoned and clear discussion, logically presented dealing with income, substitution, link to the demand curve, and clear link to importance for manufacturers. Maximum 21 with no conclusion. 18–25
3. L3 for a fair but undeveloped discussion probably concentrating on income, substitution effects without a clear link to demand, or without a clear analysis of the possible effect on manufacturer's revenue through elasticity. 14–17
4. L2 for a briefer comment on income/substitution, no link to demand, no pertinent comment on revenue/elasticity or normal/inferior goods 10–13
5. L1 for an answer that shows some knowledge but does not indicate that the question has been fully grasped or where the answer is mostly irrelevant. 1–9