2016 H2 Economics Paper 2 Essay 1: Suggested Answers
How to use these essay answers. The responses below, including the part (a) answer, are structured guides to the requirements of the question, the content, analysis and evaluation a strong answer must cover, rather than full essay prose with a written introduction and conclusion. Use them to see what to include and how to build the argument, then write it up in your own continuous prose, adding your own introduction and conclusion.
Using the wide price range of jeans, this essay explains why price elasticity and cross elasticity of demand differ across products, then asks for the revenue effects of a price rise in one brand on its own retailers and on sellers of related goods.
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Explain what might cause price elasticity of demand and cross elasticity of demand to be different for different products.
Price elasticity of demand (PED) measures the responsiveness of quantity demanded of a good to a change in its own price, while cross elasticity of demand (XED) measures the responsiveness of demand for one good to a change in the price of another. Both differ across products because of differences in consumer preferences, the share of income spent, and the relationships between goods.
Determinants of PED. The degree of necessity matters: essentials such as low cost jeans tend to have inelastic demand, while luxuries such as designer jeans are more elastic because purchases can be postponed. The proportion of income spent also matters: a S$500 pair of jeans is a large outlay and so demand is more elastic, whereas a S$20 pair is a small share of income and demand is more inelastic. Finally, the availability of substitutes raises elasticity: where many brands and styles exist, consumers switch easily when price rises, while a distinctive designer brand with few close substitutes faces less elastic demand.
Determinants of XED. XED depends on whether goods are substitutes or complements and how closely related they are. Substitutes have a positive XED, and the closer the substitute, the larger the value. Levi's and Uniqlo jeans are substitutes, but differences in brand image make them imperfect substitutes, so the XED is moderate rather than high. Complements have a negative XED; jeans and belts are weak complements, so a rise in the price of jeans only slightly reduces demand for belts. The size of the XED therefore varies with consumer habits, product design and brand positioning.
Define PED and XED, then give the determinants of each with a clear example and the direction of the effect.
Tests: PED and PES, YED and XED
Assess the likely effects of a rise in price of one brand of jeans on the revenue earned by both retailers of that brand of jeans and those who sell other related goods.
- Identify the two elasticities that drive the answer and set up the two groups whose revenue is affected.
- Reason through the own brand revenue effect using the price elasticity of demand for the brand, across the elastic and inelastic cases.
- Qualify the own brand effect by consumer segment and brand attachment.
- Work through the effect on sellers of substitutes using a positive cross elasticity of demand.
- Work through the effect on sellers of complements using a negative cross elasticity of demand, noting the strength of the link.
- Weigh short run against long run and bring in non price factors, then reach a supported judgment.
This part is gated. The full model answer with the worked revenue analysis and the evaluation, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Tests: PED and PES, YED and XED
Questions students ask
Where can I get the full worked answers to the 2016 H2 Economics paper 2 essay 1?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2016 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How should I use these suggested essay answers?
Treat them as a guide to the requirements of the question, the content, analysis and evaluation a strong answer must cover, not as full essay prose. Write the essay up in your own continuous prose, with your own introduction and conclusion.
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