Explain the factors that can affect the value of the price elasticity of supply for a product.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [2] For knowledge and understanding of the concept of price elasticity of supply. Candidates should define PES as the percentage change in the quantity supplied of a product divided by the percentage change in the price of the product. (Up to 2 marks)
2. [2] They can then comment on the different values of PES: perfectly inelastic (zero), inelastic (greater than zero but less than 1), unitary (1), elastic (greater than 1 but less than infinity) and perfectly elastic (infinity). (Up to 2 marks)
3. [4] (KU: up to 4 marks total)
4. [4] For application of factors to the determination of the PES of a product. Candidates should refer to the possible factors that could affect the PES for a product: the number of producers in a market the availability of stock/ the difficulty of keeping stocks of some products the time period the extent of spare capacity the length of the production period the availability and nature of resources the degree of factor mobility/the possibility of switching factors of production The question does refer to factors, i.e. a minimum of two factors need to be explained. A candidate needs to explain a minimum of two factors to gain all 4 marks. (APP: up to 4 marks)
5. [4] For analysis of the importance of income elasticity of demand (YED) to a firm. Comment on whether YED is useful. Comment on whether it is positive, which will be the case with normal goods, or whether it is negative, which will be the case with inferior goods. YED is important to the decisions of a firm, enabling it to estimate the effect on the demand for its products of a change in incomes. For example, if incomes are rising in an economy, a firm would be expected to increase the production of normal goods and decrease the production of inferior goods. Candidates need to consider that the extent to which YED is likely to be important to a firm will depend on a number of factors, such as the proportion of income that is spend on a particular product. The demand for some products will not be very sensitive to a change in income because they are not very expensive, whereas the demand for other more expensive products will be much more sensitive to a change in income. (Up to 4 marks)
6. [4] Candidates could then discuss other elasticities of demand, such as PED or XED. One of these done very well could gain all 4 marks, or two done reasonably well. (Up to 4 marks)
7. [8] Note: Accept PES as a possible answer (AN: up to 8 marks total)
8. [4] For evaluative comment on whether YED is likely to be the most important measure of elasticity to a firm. (EV: up to 4 marks, reserve one mark for a conclusion)