These eight original questions use fictional markets and cover the skills in demand and supply. Sketch a diagram and write your reasoning before opening each answer.
Questions
Question 1
For the demand for school bags at a fictional shop, say whether each event is a movement along the curve or a shift: (a) the shop cuts its bag price, (b) school fees fall and families have more to spend, (c) a new bag design becomes fashionable.
Answer
(a) Movement down the demand curve, because the product’s own price changed. (b) Shift right, because income is a non-price determinant. (c) Shift right, because tastes changed in favour of the product.
Question 2
A fictional market for kuih has this schedule.
| Price | Quantity demanded | Quantity supplied |
|---|---|---|
| RM2 | 90 | 30 |
| RM3 | 75 | 45 |
| RM4 | 60 | 60 |
| RM5 | 45 | 75 |
| RM6 | 30 | 90 |
Find the equilibrium price and quantity.
Answer
Quantity demanded equals quantity supplied (60) at RM4. The equilibrium price is RM4 and the equilibrium quantity is 60 kuih.
Question 3
Using the schedule in Question 2, state the shortage or surplus at RM2 and at RM6.
Answer
At RM2, demand is 90 and supply is 30, a shortage of 60. At RM6, supply is 90 and demand is 30, a surplus of 60. Prices are pushed up in the first case and down in the second, toward RM4.
Question 4
Quantity demanded falls by 30 at every price, because a rumour makes buyers avoid kuih. Find the new equilibrium price and quantity using the schedule in Question 2.
Answer
New demand is 60 at RM2, 45 at RM3, 30 at RM4, 15 at RM5, 0 at RM6. Supply is 30, 45, 60, 75, 90. They match at RM3, both 45.
The equilibrium price falls from RM4 to RM3 and the quantity falls from 60 to 45 kuih.
Question 5
In Question 4, explain in words why the price falls. Include the gap at the old price.
Answer
The rumour lowers preference, so demand shifts left. At the old price of RM4, demand is now 30 while supply is 60, a surplus of 30 kuih.
Sellers with unsold stock lower prices. As the price falls, buyers move down the new demand curve to buy more, and sellers move down their supply curve to offer less, until both reach 45 at RM3.
Question 6
A fictional tuck shop raises the price of a sandwich from RM5 to RM6, and sales fall from 250 to 220. Calculate price elasticity of demand and classify it.
Answer
Price change: (6 − 5) ÷ 5 × 100 = 20%. Quantity change: (220 − 250) ÷ 250 × 100 = −12%.
PED = 12 ÷ 20 = 0.6. Since 0.6 is below 1, demand is inelastic. See calculating and interpreting elasticity.
Question 7
A student says: “The price of a pencil case rose, so the demand curve shifted left.” Correct the statement.
Answer
A change in the product’s own price is a movement along the demand curve, not a shift. The correct statement is: “The price of the pencil case rose, so there was a movement up the demand curve and quantity demanded fell.”
A shift left would need a different cause, such as lower incomes or a fall in popularity.
Question 8
A fictional juice seller raises the price from RM4 to RM5 and sales fall from 80 to 50. Calculate PED and state what happens to revenue.
Answer
Price change: (5 − 4) ÷ 4 × 100 = 25%. Quantity change: (50 − 80) ÷ 80 × 100 = −37.5%.
PED = 37.5 ÷ 25 = 1.5, so demand is elastic. Revenue: RM4 × 80 = RM320 before, RM5 × 50 = RM250 after, a fall of RM70.
If you got these wrong
- Questions 1 and 7: revise movement along a curve versus a shift.
- Questions 2 and 3: revise drawing market equilibrium.
- Questions 4 and 5: revise explaining changes in price and quantity.
- Questions 6 and 8: revise the elasticity lesson linked under question 6.
To review your answers with a teacher, see online one-to-one Economics tuition.