Explain the significance of cross elasticity of demand values that are negative, positive and zero.

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 cross elasticity of demand. What it measures i.e. the relationship between the change in the price of one product and the change in the demand for another product (1 mark) and the correct formula (1 mark) (KU: up to 2 marks)
2. [2] and application to explain the relationship between goods with a cross elasticity value that is negative i.e. they are complementary (1 mark) because a rise(fall) in the price of one product leads to a fall(rise) in the demand for the other product (1 mark) (Up to 2 marks)
3. [2] and application to explain the relationship between goods with a cross elasticity value that is positive i.e they are substitutes (1 mark) because a rise(fall) in the price of one product leads to a rise(fall) in demand for the other product (1 mark) (Up to 2 marks)
4. [2] and application to explain the relationship between goods with a cross elasticity value of zero. i.e. they are unrelated (1 mark) because a change in the price of one product has no effect on the demand for the other product (1 mark) (Up to 2 marks)
5. [3] For analysis of the usefulness of each of the three measures (Up to 3 marks)
6. [2] For an explanation of how this measure might be useful (Up to 2 marks)
7. [2] For an explanation of the weaknesses or drawbacks of using this measure (Up to 2 marks)
8. [4] Up to 4 marks for evaluative comment on the relative usefulness of each measure. (EV: up to 4 marks)