Section B Answer one question. (a) Explain how economists use the concept of elasticity to distinguish between inferior goods and necessary goods when consumer incomes change. (b) Discuss how businesses might attempt to change the price elasticity of demand for their products and consider which approach is most likely to be successful.

Mark scheme

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

1. [8] Knowledge and Understanding of income elasticity of demand: What it measures 1 mark For accurate formula 1 mark (KU: up to 2 marks) Application: Income elasticity for inferior goods: ∞ For recognition that the coefficient is negative 1 mark ∞ For an explanation of why a negative coefficient arises when incomes change Up to 2 marks Income elasticity for necessary goods: ∞ For recognition that the coefficient is positive (accept zero) 1 mark ∞ For an explanation linking the extent of necessity to the size of the coefficient. Up to 2 marks (APP: up to 6 marks)
2. [12] Analysis: Explains any methods that might be used to change the price elasticity of demand for a product with due reference to any difficulties that might arise with each method explained. Up to 4 marks for each method explained (AN: up to 8 marks) Evaluation: Compares the likely success of the methods explained (3 marks) and reaches a conclusion on which is most likely to be successful (1 mark) (EV: up to 4 marks)