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Supply Model Answers

Section 1.3.3 — Annotated model answers for price elasticity of supply, supply shifts, and production cost questions.

These model answers demonstrate how to structure responses for Edexcel International A-Level (IAL) Economics and Business exams. Each answer includes a mark scheme breakdown, PEEL structure (where applicable), annotated paragraphs, and examiner commentary explaining what earns marks at each band.
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4 marks
Unit 1 · 1.3.3 Supply · Knowledge & Application
Explain: what is meant by price elasticity of supply (PES) and identify two factors that affect it.
Mark Scheme Breakdown
1–2 marksDefinition of PES (responsiveness of quantity supplied to a change in price)
3–4 marksTwo factors identified and briefly developed
KKnowledge/Definition
AApplication
Model Answer
Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price. K It is calculated as the percentage change in quantity supplied divided by the percentage change in price. If PES > 1, supply is elastic; if PES < 1, supply is inelastic. K

One factor affecting PES is the availability of spare capacity. A Firms with excess capacity (e.g. unused machinery or factory space) can increase output quickly in response to a price rise, making supply more elastic. Conversely, a firm operating at full capacity would struggle to expand output in the short term. A

A second factor is the time period. A In the short run, supply tends to be inelastic because it takes time to hire additional workers, source raw materials, or build new production facilities. In the long run, firms can adjust all factors of production, making supply more elastic. A
Examiner Commentary

Full marks require a clear definition of PES (not just "how supply changes") and two distinct, developed factors. Candidates who simply list factors without explaining how they affect PES will only reach 2–3 marks. The distinction between short run and long run is a reliable factor that examiners accept.

Likely Score4 / 4
8 marks
Unit 1 · 1.3.3 Supply · Analysis
Analyse: the effects of a fall in the cost of raw materials on a market.
Mark Scheme Breakdown
1–2 marksKnowledge: definition of supply and/or factors affecting supply
3–4 marksApplication: mechanism explained (lower costs → supply shifts right)
5–8 marksAnalysis: developed chain — new equilibrium, lower price, higher quantity, impact on firms/consumers
PEEL Structure
P
Point

A fall in raw material costs shifts the supply curve to the right.

E
Evidence

E.g. a fall in oil prices reduces production costs for plastics manufacturers.

E
Explain

At each price level, firms can now produce more profitably → supply shifts right → new equilibrium with lower price and higher quantity.

L
Link

Consumers benefit from lower prices, firms may see higher revenue if demand is elastic, but profit impact depends on the extent of cost savings versus the price fall.

KKnowledge
AApplication
AnAnalysis chain
DDiagram ref.
Model Answer
Para 1
Supply is the quantity of a good or service that producers are willing and able to offer for sale at each price level in a given time period. K A key non-price determinant of supply is the cost of production — when costs fall, supply increases. K
Para 2
A fall in the cost of raw materials — for example, a decline in global oil prices reducing production costs for plastics manufacturers — means that at every given price, firms can produce more profitably. A This causes the supply curve to shift rightward from S₁ to S₂. D At the original price, there is now excess supply, which puts downward pressure on the market price. The market moves to a new equilibrium with a lower price (P₂ < P₁) and a higher quantity (Q₂ > Q₁). An
Para 3
Consumers benefit from the lower price and increased availability of the product, experiencing a rise in consumer surplus. An For firms, the impact on revenue depends on the price elasticity of demand (PED). If demand is price elastic (PED > 1), the increase in quantity demanded will more than offset the price fall, and total revenue will rise. An However, if demand is inelastic, total revenue may fall despite higher sales volumes. Firms' profit margins may still improve because the cost savings from cheaper raw materials may exceed the reduction in selling price, leaving them better off overall. An
Examiner Commentary

This answer builds a clear chain of reasoning: lower costs → supply shifts right → new equilibrium (lower P, higher Q) → consumer surplus rises → revenue impact depends on PED. The oil price example provides concrete application. The conditional point on PED and profit margins demonstrates the analytical depth that earns top marks. A supply and demand diagram showing the rightward shift and new equilibrium would earn diagram credit.

Likely Score7–8 / 8

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