Explain how knowledge of the price elasticity of demand for a good can help businesses to assess the impact of price changes upon their total revenue.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [1] states what price elasticity of demand measures
2. [1] accurate formula
3. [1] accurate explanation of the meaning of relatively price elastic demand
4. [1] and the link between changes in the price of elastic goods and changes in total revenue
5. [1] accurate explanation of the meaning of relatively price inelastic demand
6. [1] and the link between changes in the price of inelastic goods and changes in total revenue
7. [1] accurate explanation of the meaning of unitary price elastic demand
8. [1] and the link between changes in the price of unitary elastic goods and changes in total revenue
9. [4] analysis that explains why there will not be a significant reduction in consumption of demerit goods when indirect taxes are imposed if the demand is price inelastic
10. [4] analysis that explains that since the consumption of demerit goods is due to information failure an awareness campaign can be used to decrease demand
11. [3] evaluation that considers the overall impact of the indirect tax
12. [1] and a concluding comment on whether this is 'a waste of time'