7 Tips for data response questions

I¬†have been asked to share some of my tips for writing data response economic questions. I hope this helps! ūüôā

1) Know how many mark question they are e.g. I know in my Jan exam for the Data response there are 4 question and the marks they hold (4, 12,  8 and 16 marks)

2) Know how the marks are split e.g. in unit three except for the 4 mark one they tend to be 50% analysis and 50% evaluation.

3) Know how to split that further so if evaluation is worth 6 marks know that you can discuss two factors worth 3 marks each or 3 factors worth 2 marks each.

4) Once you know this all you need to do is write down you points whether analysis or evaluation to marks you allocated above.

5) It is good to know this structure off by heart, memorise it and use it for planning big questions in exams

6) In terms of analysis, you are defining key terms, applying economic theories such as theory of PED to the question and drawing diagrams.

7) In evaluation all you are doing is saying whether this is different in the long-run, is this an actual realistic thing, other factors that affect what you said in evaluation, ceteris paribus (is it assumed that all factors are equal), prioritising and justifying points, if for example you are talking at tax or subsidy then you can discuss that it depends on the size of the tax for the effects to happen etc.

Price Elasticity of Demand: The 3 Curves

Price Elasticity of Demand (PED) can look like one of the three graphs shown below:

So what is the diagram above?

The diagram above shows the three different shapes you may expect to see a demand curve Рremember that a demand curve can look like anything though. As I say in my theory of demand video, theoretically demand could even be upward sloping if for example we are looking at an antique painting or designer handbag where as price increases so does the demand. 

What different PEDs do the demand curves represent?

D0 РThis represents the standard demand that most products have which is that demand falls from the highest prices the curve is elastic. This is because when prices fall more people are able to afford it (income effect). Then as we go to that bendy bit in the middle (sorry to write in such an informal manner) we see unitary elasticity where the percentage changes in demand are equal to the percentage changes in prices. The last vertical but shows inelasticity. When prices are low to begin with there is a limit to how much demand can increase when prices fall further. Compare the difference when a price falls from £20 to £10 and that of £2.50 to £1.25. 

D1 – This is an absolutely inelastic demand curve. No matter how much price changes demand is not affected. This is a more theoretical concept than one that exists in real life. An example of a good which has almost zero elasticity like this curve is the class A drug Heroin. No matter how much price increases demand is not likely to be affected because people are addicted and are prepared to pay the premium. However, even the demand for heroin is not absolutely inelastic simply because the price will affect the demand from those who want to try the drug for the first time. [Please note I am not trying to encourage drug abuse – I’m simply using it to prove a point]¬†

D2 РThis is the opposite to D1. This is an infinitely elastic demand curve. What this means is that any changes in price will kill all the demand as demand is only present for that particular price. Again this is a more theoretical abstract concept than one that actually exists in real life. For example, a good may be valued at £5 and any increase even £5.01 will kill demand 100% because people are not prepared to pay even a pence more. It is the same if the price were to fall to £4.99. The demand is absolutely elastic meaning that it is 100% affected by changes in price.

The Graphical Representation of PED

Price Elasticity of Demand (PED) can look like one of the three graphs shown below:

 
So what is the diagram above?

The diagram above shows the three different shapes you may expect to see a demand curve – remember that a demand curve can look like anything though. As I say in my theory of demand video, theoretically demand could even be upward sloping if for example we are looking at an antique painting or designer handbag where as price increases so does the demand.

What different PEDs do the demand curves represent?

D0 РThis represents the standard demand that most products have which is that demand falls from the highest prices the curve is elastic. This is because when prices fall more people are able to afford it (income effect). Then as we go to that bendy bit in the middle (sorry to write in such an informal manner) we see unitary elasticity where the percentage changes in demand are equal to the percentage changes in prices. The last vertical but shows inelasticity. When prices are low to begin with there is a limit to how much demand can increase when prices fall further. Compare the difference when a price falls from £20 to £10 and that of £2.50 to £1.25.

D1 – This is an¬†absolutely inelastic¬†demand curve. No matter how much price changes demand is not affected. This is a more theoretical concept than one that exists in real life. An example of a good which has almost zero elasticity like this curve is the class A drug Heroin. No matter how much price increases demand is not likely to be affected because people are addicted and are prepared to pay the premium. However, even the demand for heroin is not absolutely inelastic simply because the price will affect the demand from those who want to try the drug for the first time. [Please note I am not trying to encourage drug abuse – I’m simply using it to prove a point]

D2 РThis is the opposite to D1. This is an infinitely elastic demand curve. What this means is that any changes in price will kill all the demand as demand is only present for that particular price. Again this is a more theoretical abstract concept than one that actually exists in real life. For example, a good may be valued at £5 and any increase even £5.01 will kill demand 100% because people are not prepared to pay even a pence more. It is the same if the price were to fall to £4.99. The demand is absolutely elastic meaning that it is 100% affected by changes in price.

Equilibriums

The term equilibrium refers to the point at which demand = supply.

РIt is believed that if you leave markets to their own devices, this will result in a market performing at an equilibrium level. This is based on the assumption that all other things are equal (Ceteris Paribus) such as that perfect competition exists in the market place.

РWe can clearly see from any demand and supply diagram that if we operate at a price higher than the equilibrium price than this will result in excess supply. This is because if you look at the x-axis you can see that quantity supplied is greater than quantity demand. It is obvious from my other post that the reason for this is that as price increases less people are able  or willing to afford the good.

– Similarly, if a market operates at a price lower than that of the equilibrium price then this will result in excess demand. This is because again if we looked at a demand and supply diagram we can clearly see that the quantity demanded is greater than the quantity supplied. I can think of a great example to reflect this imbalance, when Topshop have a sale the price of their goods is reduced, the demand for sale products is great but the amount of goods that are available (the pretty ones that is) is very low. This results in people having their demand not met.

Important to note: That all movements along the curve are down to price changes. All shifts are down to non-price determinants such as weather, tastes, incomes, price of substitutes and complements etc.