Exam-style question
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Central-bank decision on 3.1.3.2 Price, income and cross elasticities of demand: which option best explains the economic mechanism in Individuals, firms, markets and market failure?.
- A.Define elasticity, apply it to the market context, explain the cause, transmission mechanism and effect, then judge why the result depends on context.
- B.Elastic demand means demand has increased.
- C.Price elasticity of demand is the same as income elasticity of demand.
- D.Give a definition of elasticity only, without application, chain of analysis, evaluation or judgement.
Model answer
What a good answer should say
- Correct answer: Define elasticity, apply it to the market context, explain the cause, transmission mechanism and effect, then judge why the result depends on context..
- It is correct because it links 3.1.3.2 price, income and cross elasticities of demand to market failure and keeps the reasoning within the evidence supplied by the question.
Explanation
Why this works
The reasoning should move from cause to transmission mechanism to consequence. Use a diagram, calculation or data point if it is relevant, then test the answer with Economics evaluation: size of effect, time period, elasticity or responsiveness, assumptions, and distribution of gains and losses.
This keeps the response specific to Price determination in a competitive market rather than repeating a generic question template.
Common mistake
No common mistake is linked to this question yet.