Practice · Unit 3, Area of Study 1

Demand, supply and market equilibrium

A change in the good's own price moves along a curve; any other factor shifts it. Say which, then trace price and quantity.

The lesson for this topic

Every figure in our questions is invented. For the economy over the past two years, use the current data your class gives you.

Section A style: multiple choice

Question 1

Which is a condition of a free and perfectly competitive market?

Question 2

A wheat grower sells in a perfectly competitive market where many growers sell identical wheat. If the grower sets its price above the market price, what is most likely to happen?

Question 3

The price of pears rises while the price of apples and every other good stays the same. Some shoppers buy apples instead of pears. Which part of the theory of the law of demand does this show?

Question 4

Which statement describes the income effect of a fall in the price of a good?

Question 5

In a hypothetical market, the price of concert tickets falls from 80 dollars to 60 dollars, and nothing else changes. How is the change in the ticket market best described?

Question 6

Coffee pods are used only in pod coffee machines. The price of pod coffee machines falls sharply, ceteris paribus. What happens to the demand curve for coffee pods?

Question 7

Most new cars in a hypothetical economy are bought with loans. Interest rates on car loans rise, ceteris paribus. What happens to the demand for new cars?

Question 8

In a hypothetical economy the share of people aged over 80 rises steadily, ceteris paribus. What is the likely effect on the market for aged-care services?

Question 9

In a hypothetical economy, home-brand instant noodles are an inferior good. Household disposable incomes rise, ceteris paribus, and the upward-sloping supply curve of noodles does not move. What happens in the market for these noodles?

Question 10

According to the theory of the law of supply, why does the quantity supplied of a good rise when its price rises, ceteris paribus?

Question 11

A rise in demand pushes up the market price of strawberries, ceteris paribus. Which describes strawberry growers' response to the higher price?

Question 12

Award wages for cafe workers in a hypothetical city rise, ceteris paribus. What happens to the supply of cafe meals?

Question 13

Bakeries in a hypothetical economy install new ovens that raise output per worker, lowering the cost of each loaf, ceteris paribus. What happens in the market for bread?

Question 14

The diagram shows a hypothetical market for wheat. A drought shifts supply from S1 to S2, while demand D does not change. Which describes the change in the market?

Question 15

The diagram shows a hypothetical market for bicycles. Demand shifts from D1 to D2 at the same time as supply shifts from S1 to S2. Which describes the change in the market?

Question 16

Weekly demand and supply schedules for pies (invented figures)
Price (dollars)	Quantity demanded	Quantity supplied
5	700	400
6	660	460
7	620	520
8	580	580
9	540	640

The table shows the weekly demand and supply schedules for pies at a hypothetical stadium. If the price were held at 6 dollars, what would happen?

Question 17

In a hypothetical economy, demand for oat milk rises and its price rises relative to the price of dairy milk, ceteris paribus. What is the most likely effect on the allocation of resources?

Question 18

How can free and competitive markets promote higher living standards over time?

Question 19

In a hypothetical market for avocados, a frost destroys part of the crop at the same time as a health report raises consumers' preference for avocados. What is the effect on the equilibrium, ceteris paribus?

Question 20

Weekly schedules for lunch boxes (invented figures)
Price (dollars)	D1	S1	D2	S2
7	620	520	720	420
8	580	580	680	480
9	540	640	640	540
10	500	700	600	600
11	460	760	560	660

The table shows a hypothetical market's weekly schedules for lunch boxes before and after two changes: a rise in demand (D1 to D2) and a fall in supply (S1 to S2). What happens to the equilibrium?

Question 21

In a hypothetical market for canned soup, the equilibrium price rises and the quantity traded falls. Which single change, ceteris paribus, is consistent with this outcome?

Question 22

In a hypothetical economy, the price of lithium rises relative to other minerals and stays high for several years. How is a free and competitive market most likely to reallocate resources over that time?

Section B style: short and extended answers

A hailstorm and the cherry marketShort-answer question · 6 marks

A hailstorm destroys part of the cherry crop in a hypothetical growing region. The diagram shows the weekly market for cherries before (S1) and after (S2) the storm. Demand D does not change.

(a) What are the equilibrium price and quantity traded after the storm? [1]

(b) Explain how the hailstorm changes the equilibrium price and quantity traded of cherries. [3]

0 words · about 50 to 80 words

0 words · a sentence or two

Coffee demand in Bramble BayShort-answer question · 6 marks

Bramble Bay is a hypothetical coastal town with many cafes. In one month a new office park opens nearby and its workers buy lunch in town, a rival chain of tea houses cuts its prices, and consumer confidence falls after news of job losses at the port.

(a) Distinguish between a change in quantity demanded and a change in demand. [2]

0 words · a sentence or two

(b) Explain how two of the changes described could affect the demand for coffee at Bramble Bay's cafes. [4]

0 words · about 80 to 120 words

Eggs at a farmers' marketShort-answer question · 5 marks

At a hypothetical farmers' market, 30 stalls sell free-range eggs that buyers cannot tell apart. Prices are chalked on boards that every shopper can see, and any farmer can rent a stall for the day.

(a) Outline two conditions for a free and perfectly competitive market. [2]

0 words · a sentence or two

(b) Explain why one stall at the market cannot sell its eggs for more than the market price. [3]

0 words · about 50 to 80 words

Two changes in Kelpie Creek's coffee marketShort-answer question · 7 marks

Kelpie Creek is a hypothetical town. In the same month, tea (a substitute for coffee) becomes much cheaper, and a new roasting process lowers the cost of producing coffee. The diagram shows the weekly market for coffee before (D1, S1) and after (D2, S2) the changes (invented figures).

(a) What are the equilibrium price and quantity after both changes? [1]

(b) Calculate the change in total weekly spending on coffee in Kelpie Creek, in dollars. Give a fall as a negative number. [2]

dollars

0 words · about 80 to 120 words

E-bikes and regular bikes in LowanExtended-answer question · 10 marks

Lowan is a hypothetical economy. Over the past year its consumers' preference for e-bikes has grown. The table shows the average price and monthly sales of e-bikes and regular bikes in Quarter 1 and Quarter 4 (invented figures).

Bicycle markets in Lowan (invented figures)
Measure	Quarter 1	Quarter 4
Average price of an e-bike (dollars)	1600	1840
E-bikes sold a month	2400	3000
Average price of a regular bike (dollars)	800	760
Regular bikes sold a month	5000	4400

(a) Calculate the percentage change in the average price of an e-bike in Lowan from Quarter 1 to Quarter 4, to one decimal place. [2]

(b) Using the data, analyse how the change in consumers' preferences affects the market for e-bikes and the allocation of Lowan's resources between e-bikes and regular bikes. [8]

Use the stimulus: quote its figures or trends as evidence for your points.

0 words · about 200 to 300 words

Price (dollars)	D1	S1	D2	S2
7	620	520	720	420
8	580	580	680	480
9	540	640	640	540
10	500	700	600	600
11	460	760	560	660

Price (dollars)	D1	S1	D2	S2
7	620	520	720	420
8	580	580	680	480
9	540	640	640	540
10	500	700	600	600
11	460	760	560	660

Price (dollars)	D1	S1	D2	S2
7	620	520	720	420
8	580	580	680	480
9	540	640	640	540
10	500	700	600	600
11	460	760	560	660