TOPIC-3 DEMAND AND SUPPLY

1-The diagram shows the demand for chocolate. JO3

What could cause the movement from point X to point Y?

A- a change in tastes
B- a fall in the price of chocolate
C- an increase in income
D- a successful advertising campaign for chocolate

2-In many countries, extra staff are employed by the postal service and additional collections of post
are made to clear the large amount of mail before holiday periods. JO3
What happens to the demand and supply curves for postal services during these periods?

3-What would not cause a shift in the demand curve for a good? JO5
A -a change in incomes
B -a change in the price of a substitute good
C- a change in the price of a good
D- a change in the tastes of consumers

4-Four changes affecting the supply of a good are listed below.

What would cause the supply curve to shift to the right? JO5
A- an improvement in technology
B- an increase in its market price
C- a reduction in labour productivity
D- the introduction of a sales tax

5-What is an example of complementary demand? JO5

A- buses and bus fares
B -cotton and cotton seed
C- televisions and electricity
D- wood and sawdust

6-A good is successfully advertised.

What is the most likely impact on the demand and supply curves for the good? JO5

7-What is mostly likely to cause a shift in the supply curve for oil JO5

A-an increase in purchase of care

B-an increase in the price of oil

C-a rise in consumer incomes

D-the discovery of new oilfields

8-Which method of advertising is likely to be the most effective for promoting the sales of textbooks
JO5

A-direct mail

B-local radio

C-national television

D-posters on buses and taxis

9-In 2002 the world price of cocoa was higher than in 2001

Which combination of changes in the demand for and the supply of cocoa would always lead to a rise
in price

DEMAND FOR COCOA SUPPLY OF COCOA

A HIGHER HIGHER

B HIGHER LOWER

C LOWER HIGHER

D LOWER LOWER

10-A demand curve for the product shows the relationship between its price and J07

A-cost of production

B-population changes

C-the income of the consumer

D-the quantity o0f the product consumed

11-The following was printed in a magazine. JO7

More soft drinks are being consumed than ever before by the 16 – 34 age group. Schweppes, the drink
manufacturers, claim that over 45 per cent of their soft drinks are now being consumed without
alcohol as people switch away from alcoholic spirits.
How would this change be represented on a demand and supply diagram for soft drinks?
A- decrease in demand
B- decrease in supply
C- increase in demand
D -increase in supply
12-

13-A government decides that an economy should make more use of the market.
Which policy might help to achieve this? NO9
A- a decrease in controls on imported goods
B- an increase in government ownership of land
C- an increase in subsidies to industry
D- the fixing of minimum wage levels for workers

14-What is not held constant in constructing a demand schedule? J12

A-the incomes of consumers
B -the prices of complementary goods
C-the price of the good itself
D-the tastes of consumers

15-A supply curve for a commodity is drawn to show how quantity supplied varies with
A- government taxes. N12
B- income.
C- tastes.
D -the price of the commodity.

16-In 2010, floods caused severe damage to wheat production.

How would this be shown on a market demand and supply diagram for wheat? N12

ANSWERS..

1-B a fall in the price of chocolate will lead to movement along the same demand curve from X to Y.
All other factors are demand shifters.

2-C employment of extra staff will lead to increase the supply and supply curve will shift to the
right. Extra collection shows that demand has also increased. So, demand curve will also shift to the
right.

3C a change in the price of the good leads to movement along the same curve and there will be no
shift.
4-A an improvement in technology results in increase in supply which shifts it to the right.

5-C televisions and electricity are complementary goods as if we buy TV then we will have to
demand electricity as well.

6-C Demand rises due to successful advertisement campaign and demand curve will shift to the right.
But it increase the burden of the producers and they can produce less due to which supply will fall and
its curve will shift to the left.

7-D the discovery of new oilfields decreases the price of oil and therefore the overall cost of
production will fall and production will rise leading the supply curve to shift to the right.

8A direct mail to the schools will be the best option for the sale of textbooks.

9-B Higher demand and lower supply also leads to rise in price. Students can draw the graph of
equilibrium then shift the demand to the right and supply to the left.New equilibrium will take place
were new demand and supply curves are intersecting each otherYou can clearly see that price has
increased.

10-D demand curve for the product shows the relationship between its price and quantity demanded
or consumed.

11-C increased in demand is observed in the context.

12-B a rise in the price of alternative drinks will lead the demand for coffee to rise and demand curve
will shift to the right. For eg tea and coffee are substitute of each other and a rise in price of tea will
lead to rise in demand for coffee.

13-A a decrease in control on imported goods will lead to the market forces to be active and their role
will rise.

14-C the price of the good itself is not held constant while all other factors are constant.

15-D Quantity supplied varies with price of the commodity. All other factors mentioned will cause
changes in supply not quantity supplied. The differences between changes in supply and changes in
quantity supplied is, Quantity supplied shows movement along the same supply curve while changes
in supply means shift in supply curve.

16-B Damage to the wheat will only affect supply and it will fall due to which its curve will shift to
the left but there will be no change in the demand curve. It will remain the same because changes in
production affects supply and not the demand.

TOPIC-4 EQUILIBRIUM

1-

2-The diagram shows a market for wheat that is in equilibrium. NO3/J10

.

Which area represents the total revenue for wheat farmers?

A- OTXY B –OVXY C- OVXZ D -OWXY

3-The graph shows the market for bread. NO3

Which of the following might have caused a change in demand from D 1 to D2?
A- a fall in the cost of producing bread
B- a fall in the price of an alternative to bread
C- a newspaper report that eating bread is healthy
D- a rise in price of a complement to bread

4-The diagram shows the demand for and supply of a product. The original equilibrium is at X.
Which point indicates the new equilibrium position if there is an increase in the price of a close
substitute for the commodity while other things remain the same? JO4
5-The diagram shows the demand for and supply of a firm's product. The original equilibrium is at X.
The firm pays for a successful advertising campaign. JO4
What is the new equilibrium?

6-The charts show the number of railway passenger journeys made and the miles of route open
JO4
What can be concluded from the charts?
A- The overall trend in passenger journeys between 1990 and 1994 was upwards.
B -The routes had more people travelling on them in 1994 than in 1992.
C- The revenue of the railway decreased between 1990 and 1994.
D- There were more trains running in 1994 than in 1992.

7-The diagram shows the market for bicycles. The demand for bicycles increases and at the same time
manufacturers are able to cut costs through new production methods. NO4
According to the diagram, what would be the result of these changes?

8-The major oil producers sometimes try to raise the price of oil. NO4
How would this be shown on a demand and supply diagram?
A- a movement along the demand curve to the right
B- a shift in the supply curve to the right
C- a shift in the demand curve to the left
D- a shift in the supply curve to the left

9-The world price of cocoa has been falling while the prices of products made from cocoa have been
rising.
Which combination might explain this? NO4

10-Tea and sugar are complementary goods. JO6

What will happen if the price of tea falls, other things being equal?
A- The demand curve for sugar will move to the right.
B- The demand curve for tea will move to the right.
C- The price of sugar will fall.
D- The supply curve of sugar will move to the left.
11-The price of a good is temporarily above the market equilibrium price.
What must happen for the market to be brought back to equilibrium? JO6

12-What is not held constant in calculating a demand schedule? JO6

A- the incomes of consumers
B- the prices of complementary goods
C- the price of the good itself
D-the tastes of consumers

13-As petrol prices increase, demand for petrol remains constant.

What does this say about the price elasticity of petrol? JO6
A- The demand is price-elastic.
B- The demand is price-inelastic.
C- The supply is price-elastic.
D- The supply is price-inelastic.

14-The diagram shows a change in the demand for a company’s products as a result of a change in
advertising. NO6
What has increased?
A- the cost of advertising to the company
B -the cost of advertising to a rival company
C- the expenditure on advertising by the company
D- the expenditure on advertising by a rival company

15-The demand for and supply of a good both change. As a result the price of the good rises but the
quantity traded remains the same.
What must have happened to demand and supply? NO6

16-The table shows the quantity of coffee demanded per day and the quantity supplied per day.
NO6

At the equilibrium price, what will be the total expenditure on coffee?

A- $10 B- $20 C- $200 D- $400

17-Australian mines are among the world’s largest suppliers of uranium but the mines are
contaminating Australia’s natural environment. It is recommended that the mining companies
install new equipment which causes less pollution.
If this is done, how would it be represented on a demand and supply diagram for uranium?
JO7

18-

19-The graph shows changes in house prices in a developed country. NO7

What might have caused these changes in prices?

A- an increase in government subsidies to house builders
B- an increase in income
C- an increase in the supply of houses
D -an increase in unemployment

20-In July 2006, the UK chocolate producer, Cadbury Schweppes, had to withdraw one million bars
of chocolate from the market because of food contamination at one of its factories. This was widely
reported in UK newspapers.
Which diagram shows the likely effect on the market for chocolate produced by Cadbury
Schweppes?

21-

22-The diagram shows the market for a product. The equilibrium is at X. NO8
Which combination of demand and supply changes would result in a new equilibrium in the area
marked Y?

23-Four changes affecting the supply of a good are listed below. No8
Which would cause the supply curve to shift to the left?
A- a decrease in its market price
B- an improvement in technology
C- an increase in labour productivity
D- the introduction of a sales tax

24-Many people prefer to buy clothes from a local shop rather than travel to a specialist tailor to have
them made. NO8
Which combination of characteristics of the local shop would make this most likely?
A- easily accessible shop high quality product more expensive
B- easily accessible shop average quality product less expensive
C- shop owner known to customer average quality product more expensive
D- shop owner known to customer poor quality product less expensive
25-The market for a good was in equilibrium. A change occurred which resulted in a new equilibrium
with a higher price for the good and a lower quantity traded.
What change would have caused this? JO9
A -The demand curve moved to the left.
B- The demand curve moved to the right.
C- The supply curve moved to the left.
D- The supply curve moved to the right.

26-The diagram shows an initial equilibrium point (X) in a market and a new equilibrium point (Y).
NO9

Which combination of changes in demand and supply could have caused the movement from X to Y?

27-A large supermarket applied to build on land which was an area of natural beauty. The local
government allowed the building, even though the natural beauty of the area would be lost, because
many jobs would be created and much needed income would be brought to the local community.
NO9
Which economic ideas cannot be found in the above statement?
A- external cost and private enterprise
B- free market and the conservation of resources
C- opportunity cost and improved standards of living
D- public sector and external benefit

28-The diagram shows the market for fresh fish in the Caribbean with equilibrium point X. New,
more efficient boats with lower running costs are then used.
Which point represents the new equilibrium? J10

29-

30-A govt intends to build a new international airport in an area of outstanding natural beauty

What would be an external cost of this decision

A-the cost of importing construction material

B-the country side that is lost

C-the increase in profit for local business

D-the wages paid to the construction workers

31-The diagram shows demand and supply curves for a product at its equilibrium price P. N10
How would the introduction of a subsidy be shown?
A- Demand would shift to D1.
B- Demand would shift to D2.
C- Supply would shift to S1.
D- Supply would shift to S2.

32-Which statement could explain a decrease in the demand for natural rubber? N10
A- Demand for car tyres has increased.
B-New techniques of producing substitutes for rubber have been introduced.
C- Productivity of rubber plantations has increased.
D- The area of land on which rubber is grown has increased.

33-Due to changes in the costs of production, an industry’s supply curve shifted at various times from
S1 to either S2 or S3. J11

If a shift in supply was due to a seasonal increase in the cost of raw materials, what would have been
the effect on demand? J11
A -The demand curve would move from D1 to D2.
B- The quantity demanded would move from x to w.
C- The quantity demanded would move from x to y.
D -The quantity demanded would remain the same at x.
34-The table shows the changes in two influences on the demand for and supply of televisions.
If these two changes occurred at the same time, in which case is it impossible for the price of
televisions to rise? J11

35-Wet weather in 2009 led to a fall in the sales of summer clothes. To support businesses the
government reduced the sales tax (VAT). N11
How would these events be shown on a demand and supply diagram for summer clothes?

36-Drought in African countries often results in poor harvests. Other countries then help by sending
quantities of food.
What are the likely results of these events for the price of food in the drought-affected countries?
N11
A- It will fall and then rise.
B- It will rise and continue to rise.
C- It will rise and remain at this higher level.
D- It will rise and then fall.

37-

38-What changes would move the equilibrium in the diagram from point X to a new point within area
Z? J12

A- a decrease in demand with a decrease in supply

B- a decrease in demand with an increase in supply
C -an increase in demand with a decrease in supply
D- an increase in demand with an increase in supply

39-

40-There are a fixed number of seats at a concert. Most of the audience would continue to attend even
if the seat prices were increased. J13
Which demand and supply diagram represents this situation?

41-Many countries buy oil from Saudi Arabia. Which changes is most likely to lead a fall in the price
of a barrel of oil
A-an increase in demand of 10 percent with no change in supply

B-an increase in demand by 10 percent with an increase in supply of 10 percent

C-ni change in demand with a 10 percent decrease in supply

D-no change in demand with a 10 percent increase in supply

ANSWERS—

1-C gods harvest only shifts the supply curve to the right and demand curve will remain the
same.New equilibrium will take place at C

2-B total revenue is equal to price multiply by quantity.Price is OV and quantity is OY.So, the area
under the graph OVXY is total revenue.

3-C a newspaper report that eating bread is healthy will lead to increase in demand for bread so its
demand curve will shift to the right.

4-C rise in the price of substitute increases the demand for existing product reslting in rightwards
shift in the demand curve.

5-B advertisement shifts the demand to the right and supply to the left.

6-B in 1994 number of passenger journeys completed are greater than 1992

7-C Demand and supply curves are shifted to the right leading the price unchanged and quantity to
rise.

8-D rise in price of oil increases the cost of production and supply shifts to the left.

9-D excess supply will cause the price to fall and advertisement cost will rise.

10-A The demand curve for sugar will move to the right because a fall in price of tea will lead to
increase in its demand and people will have to demand more sugar as well because these are
complements or jointly demanded goods.

11-B price above equilibrium is minimum price and results in excess supply which means demand is
less than supply. Therefore to bring the market to the equilibrium we should increase quantity
demanded and decreases quantity supplied.

12-C the price of the good itself can change while all other factors are kept constant.

13-B the demand for petrol is price inelastic because a change in price is not causing a change in
quantity.

14-D demand of the product shown in the diagram has increased.It happens due to increase in the
expenditure on advertising by a rival company.
15-C Rise in demand and fall in supply may result in the above mentioned situation.Students are
advised to draw the graph of equilibrium then shift the demand curve to the right and supply curve to
the left.You can see that price has increased but quantity traded is same.However quantity will be
uncertain which means that it may rise,fall as well as may remain the same.

16-C Equilibrium is where Qd=Qs. Equilibrium quantity is 20 and equilibrium is 10.So total revenue
is 20 multiply 10=200

17-C New equilibrium and machinery will lead to increase in supply leading to shift the supply to
the right but there will be no shift in the demand curve.

18-A Demand for private schools will fall as performance of government school is improving.Higher
cost of private school will also lead to fall in supply as well.So,new equilibrium will take place at A
where new demand and new supply curves are intersecting each other.

19-B Prices are increasing which may be cause by an increase in income.When income rises the
demand for goods and services will increase so demand curve will shift to the right and price will rise
at new equilibrium.

20-C Supply will fall and shift to the left because chocolate producer Cadbury Schweppes,had to
withdraw one million bars of chocolate from the market.Demand will also fall and shift to the left
because of food contamination.

21-D Fall in tax rate increases the ability of consumers to buy more and rise in price of substitute also
increases the willingness to buy some specific product.For eg,tea and coffee are substitute and if there
is rise in price of coffee then product will be willing to buy more tea.

22-A If both demand and supply curves shift to the left then new equilibrium will take place at Y.It
happens due to fall in demand and supply both.

23-D The introduction of a sales tax will lead the supply to fall and shifting it to the left.

24-B People go to the local shop because of easily accessible shop average quality product less
expensive.

25-C If the supply curve move to the left the price will rise and quantity will fall.Students can draw
the diagram equilibrium at X. Then shift the demand curve to the right and supply curve to the
left.You can see that price has increased and quantity has decreased.

26-C Increased demand and decrease in supply will determine the new equilibrium at Y.Students can
draw equilibrium at X then shift the demand curve to the right and supply curve to the left.New
equilibrium will take place at Y where new demand and new supply curves are intersecting each
other.

27-B free market and the conservation of resources are not found in the statement because there is
government department and resources are exploited [used] and not conserved [saved].

28- D new efficient boats will help in catching more fish so,supply will rise and supply curve will
shift to the right and new equilibrium will take place where new supply curve cuts the same demand
curve at D.
29-D A fall in income will lead to shift the demand curve to the left but again equilibrium price will
remain the same as supply curve is perfectly elastic.Students can draw the same graph and determine
equilibrium price then shift the demand curve to the left you can see that the new piece is exact same
as before.

30-B the country side that is lost is the external cost because its natural beauty is lost.

31-D Supply would shift to S2 because subsidy increases the supply and supply curve will shift to the
right.There will be no shift in the demand curve.

32-B New techniques of producing substitutes for rubber have been introduced which will cause the
demand for rubber to decrease as people will buy more of substitutes as new technology will help to
increase the supply of alternatives and fall in their price.

33-B Rise in price of production shifts the supply curve from S to S2 and new equilibrium will take
place at W due to which the quantity demanded would move from X to W.

34-A when income falls,demand curve will shift to the left and equilibrium price will fall. In the
same way,when the cost of production falls, supply curve will shift to the right and price will again
fall. Therefore, in these 2 situation it is impossible for price to rise rather it will fall.Students are
advised to draw the graph of equilibrium and then shift demand curve to the left and supply curve to
the right. You will witness a fall in price at new equilibrium.

35-A falls in sales means demand has decrease and demand curve will move to the left.On the other
hand the providence of subsidy by the government will shift the supply curve to the right.

36-D price will rise and then fall because due to droughts supply will fall and price will rise later on
supply will rise as other countries are sending goods to the drought affected country.So supply will
rise and price will fall. Students are advised to draw graph of equilibrium and shift the supply curve to
the left to prove the first situation.You can see that price has decreased . Secondly draw another
diagram of equilibrium then shift the supply curve to the right at new equilibrium you can see that
price has decreased.

37-B Increases in tax rates decreases the supply and it will shift to the left. Increased fashion for the
prouct increases demand and demand curve will shift to the left.New equilibrium will take place at B
where new demand and supply curves are intersecting each other.

38-C an increase in demand with a decrease in supply.Students are advised to draw the same graph
then shift demand to the right and supply to the left.Then see new equilibrium to confirm it.

39-D Due to fall in income demand curve will shift to the left and due to rise in cost of production
supply curve will shift to the left.Therefore new demand and supply curve will set equilibrium at D.
Students are advised to draw the same graph in the question and shift demand and supply both to the
left.You will see that new demand and supply curves are intersecting each other at D

40-C demand would be inelastic due to which demand curve will be steeper and supply of seats being
fixed will be a vertical straight line.

41-D o change in demand with a 10 percent increase in supply will lead to fall in price of oil.
Students are advised to draw an equilibrium graph then shift the supply curve to the right.You will
observe a decrease in price.
TOPIC -5 DISEQUILIBRIUM

1-The table shows the price of, demand for and supply of X per week. JO3

What will be the effect if the government imposes a minimum price of $40 per tonne?
A- a fall in the price of X
B- a shortage of X
C- a surplus of X
D- a waiting-list for X

2-The diagram shows the supply and demand curves for a good. The market is in equilibrium at point
X. JO5

What is the excess demand at price P?

A- PT B- QR C- QT D- ST

3-In a market there is a shortage of goods

What change would cause the market to come to an equilibrium NO6

A-an increase in demand

B-a decrease in supply

C-a fall in price

D-a rise in price

4-Sonetimes travel companies advertise holidays at prices below cost. Jo7

What might be a reason for this

A-an excess demand for holidays.

B-an excess supply of holidays.

C-a price inelastic demand for holidays.

D-Insufficient competition in the holiday market.

5-Due to good weather, there is a surplus in the market for an agricultural product.
Which change would cause the market to return to equilibrium?
A- a decrease in demand JO8
B- a fall in price
C- an increase in supply
D- a rise in price

6-

7-In 2008 inflation was close to 100 000 % in Zimbabwe. In a bid to reduce this high rate, the
Zimbabwean Government imposed maximum prices on a range of products. This caused price rises
amongst those goods sold unofficially or illegally.
What could explain this? No9
A- The maximum prices increased demand whilst reducing supply.
B- The maximum prices reduced demand whilst increasing supply.
C- The maximum prices were set above the equilibrium price levels.
D- The maximum prices were set at the equilibrium price levels.
8-The diagram shows the demand for and the supply of bread. J10/J96

A maximum price P1 is fixed by the government.

What is likely to be the immediate result of this?
A- a movement of the demand curve to the right
B- a movement of the supply curve to the right
C- a shortage of bread
D- a surplus of bread

ANSWERS...

1-C there will be a surplus of X Because at price 40 dollar, demand is 10 and supply is 14 units. So,
supply is more than demand and this situation is known as surplus or excess supply.

2-C QT is the excess demand or shortage because at price P demand is more ie.T but supply is less
ie.Q.

3-D a rise in price will restore equilibrium because shortage shows that price is below equilibrium
[maximum price]. See the graph of maximum price is given Q2 above and then evaluate the result.

4-B an excess supply of holidays may lead to sell at price, lower than the cost of production to
remove excess supply.
5-B surplus occurs when price is above equilibrium.So to restore equilibrium there should be a fall in
price.

6-B at price 1 dollar demand will exceed supply by 60 kg ie.130-70=60. It is the gap between
demand and supply at price 1 dollar.See the figure carefully.

7-A the maximum prices increased demand whilst reducing supply. It is so because black marketing
may be promoted[unofficial act], as people will be willing to buy even at high prices.

8-C Maximum price leads to a shortage of bread or excess demand of bread because demand is more
than supply. Students can see it from the diagram that demand is higher than supply.