These seven questions are original, with invented markets and numbers. Write your own answer first, then open each one.
Use the timed original practice session builder if you want to attempt them against the clock. The lessons behind them are in price mechanism with more than one change.
Questions 1 to 3: name the change
Question 1. A fictional school canteen raises the price of a nasi lemak pack from RM4 to RM5. Quantity demanded falls from 200 to 150 packs a day. Name the change and describe it on the demand curve.
Answer
The price of the same product changed, so this is a contraction in demand: a movement up the existing demand curve from 200 to 150 packs.
The demand curve does not shift, because tastes, incomes and other determinants are unchanged. Writing “demand decreases” would be the wrong term.
Question 2. The price of flour used by a fictional roti stall rises. State which curve in the roti market shifts, in which direction, and the effect on price and quantity.
Answer
Flour is a cost for sellers, so supply shifts left.
At the original price there is now a shortage, so the equilibrium price rises. The higher price moves buyers up the unchanged demand curve, so equilibrium quantity falls.
Question 3. The price of tea in a fictional town rises. State the effect on the market for coffee, a substitute.
Answer
Some tea drinkers switch to coffee. At every price of coffee, more coffee is wanted, so coffee demand shifts right.
Equilibrium price rises and equilibrium quantity rises, because supply is unchanged and the market moves up the supply curve.
Questions 4 to 5: two changes
Question 4. In a fictional fruit market, demand decreases and supply increases. What can be concluded about price and quantity?
Answer
Lower demand lowers price, and higher supply lowers price, so price falls with certainty.
Lower demand reduces quantity, while higher supply raises quantity. The two effects oppose each other, so the change in quantity depends on the relative sizes of the shifts and cannot be stated from the information given.
Question 5. A fictional market for school bags has demand Qd = 200 − 20P and supply Qs = 40 + 20P, where P is in RM.
(a) Find the equilibrium price and quantity. (b) Demand rises by 40 at every price. Find the new equilibrium.
Answer
(a) 200 − 20P = 40 + 20P, so 40P = 160 and P = RM4. Quantity is 200 − 80 = 120. Check in supply: 40 + 80 = 120. So Q = 120.
(b) New demand is Qd = 240 − 20P. Set 240 − 20P = 40 + 20P, so 40P = 200 and P = RM5.
Quantity is 240 − 100 = 140. Check in supply: 40 + 100 = 140. So Q = 140.
Price and quantity both rise. This is a shift of demand along an unchanged supply curve.
Questions 6 to 7: error checking and two shifts with figures
Question 6. A student writes: “The government gives sellers of school shoes a subsidy, so supply rises. The price of shoes falls, so demand rises because shoes are cheaper.” Correct the answer.
Answer
The first part is right: a subsidy lowers sellers’ costs, so supply shifts right and equilibrium price falls.
The second part is the error. A fall in the price of shoes causes a movement down the demand curve, which is an extension in quantity demanded. Demand itself does not rise, because no determinant of demand changed.
A correct version: “Supply shifts right, price falls, and quantity demanded extends along the unchanged demand curve.”
Question 7. In a fictional ink cartridge market, Qd = 100 − 10P and Qs = 10P.
The price of printers falls, raising demand for cartridges by 20 at every price. At the same time, a supplier’s cost rises and supply falls by 20 at every price.
(a) Find the original equilibrium. (b) Find the new equilibrium. (c) State what this shows about the certain and uncertain results.
Answer
(a) 100 − 10P = 10P, so P = 5 and Q = 50.
(b) New demand is Qd = 120 − 10P. New supply is Qs = 10P − 20.
Set 120 − 10P = 10P − 20, so 20P = 140 and P = 7. Quantity is 120 − 70 = 50. Check in supply: 70 − 20 = 50. So Q = 50.
(c) Demand up and supply down always raises price, so the rise from 5 to 7 is certain. Quantity can go either way in general. Here it stays at 50 because the two shifts are equal in size, which is something the question had to tell you.
If you got these wrong
Wrong terms in Questions 1 and 6 point to distinguishing a movement along demand from a shift. Choosing the wrong curve in Questions 2 and 3 points to linking a determinant to the correct curve.
Questions 4 and 7 need what can and cannot be concluded when both curves shift. Record each slip in the mistake log and paper-error review to see which one repeats.
For a teacher to go through your answers with you, see online one-to-one Economics tuition.