Explain how utility theory can be used to determine the downward slope of a demand curve.

Mark scheme

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

1. [12] (a) Explanation of utility, assumption of given tastes, income, relation to price, equilibrium point and quantity purchased, result of changes in price to construct demand curve. Level 4 (9-12 marks): for a reasoned and clear explanation, logically presented dealing with each point and an accurate explanation of the derivation of the curve.
2. [13] (b) Decrease in sales tax lowers price, shifts budget line. As the tax applies to all goods the budget line will shift outwards, not necessarily parallel. Reward a discussion of a reduction in tax/price on one good. Level 4 (9-13 marks): for a reasoned and clear discussion, logically presented dealing fully with effect on demand for inferior and normal good. An inferior good that is also a Giffen good will result in a fall in demand. Clear conclusion.