Compare the derivation of a demand curve for a product using the marginal utility theory with the derivation using indifference curve theory.

Mark scheme

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

1. [12] Indifference curve theory shows the quantities of two goods bought as price changes; it requires a separate diagram for each good to show the quantity bought at each price. Utility theory compares the total and marginal utility to the price, the quantity bought can be shown on the same diagram.
2. [12] Level 4 (9-12 marks): for a sound explanation of both budget lines and indifference curves and a clear link to the separate demand curve, sound explanation of link between utility, price and demand, with accurate clear diagrams and a clear understanding of the principles involved.
3. [13] Inferior goods would result in a different outcome when prices change from the outcome of a normal good, but they do not invalidate the underlying assumptions of the theory. Indifference curve theory can show more precisely why the difference occurs using income and substitution effects. Advertising does not necessarily invalidate the theory but it could be that persuasive advertising results in more being purchased at a higher price – this could still be explained using the theory as either utility is perceived as changing, or can be shown using the indifference curve diagrams. The assumptions have not changed.
4. [13] Level 4 (9-13 marks): for a reasoned and clear discussion, logically presented dealing with income, substitution, inferior and advertising.