Despite more cars being sold, world demand for bicycles is increasing. It has been estimated that the world price elasticity of demand for bicycles is –0.18 but this does vary between countries. The indirect taxes imposed on bicycles also differ between countries.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [2] 2 marks for the willingness and ability to buy a product or 1 mark for either willingness or ability to buy.
2. [6] 1 mark each for three causes identified e.g.:
3. • rise/fall in income (may be regarded as a normal or an inferior good)
4. • rise in the price of other forms of transport
5. • a greater desire to be fit/tastes
6. • rise in population size
7. • a successful advertising campaign
8. 1 mark each for three explanations e.g.:
9. • with higher incomes, people are more able to buy bicycles
10. • cycling is a substitute for bus travel
11. • cycling is used both for transport and for leisure
12. • a larger population will mean there are more people to buy bicycles
13. • a successful advertising campaign will persuade more people to buy bicycles.
14. Note: accept any valid reason which would shift the demand curve for bicycles to the right but do not accept a change in price or a change in supply of bicycles.
15. [6] 1 mark for bringing out the meaning of PED or elastic demand – defined or implied.
16. • differences in the closeness of substitutes [1] availability of close substitutes will make demand elastic [1]
17. • differences in the proportion of income spent on the product [1] the higher the proportion, the more elastic demand will be [1] note: also accept average income may vary in the two countries with demand being more inelastic in the richer country
18. • differences in what are considered to be luxuries and what are considered to be necessities [1] if the product is considered to be a luxury, demand is likely to be elastic [1]
19. • differences in the price of bicycles [1] demand will be more elastic, the higher the price [1].
20. Note: a maximum of 3 marks for identification of reasons.
21. [6] Up to 4 marks for why it should:
22. • imposing taxes on products with inelastic demand will cause price to rise [1] demand will fall by a smaller percentage [1] and so is a good source of tax revenue [1] higher tax revenue can be spent on e.g. education and health care [1]
23. • a significant rise in price may be needed to reduce demand [1] of harmful products [1].
24. Up to 4 marks for why it should not:
25. • indirect taxes may be imposed on products to discourage their consumption [1] will be more successful if demand is price elastic [1] demand will fall by more than the rise in price [1] a government may want to discourage consumption of demerit goods (not necessary to use the term) [1] also may want to discourage consumption of imports [1] in practice it may be difficult to estimate PED (1).
26. • some products with inelastic demand are basic necessities (1) and so imposing indirect taxes on them will harm the poor (1) indirect taxes are often regressive (1).