Use this review after the Unit 1 diagnostic. It shows how the six topics fit together, then gives six questions that each combine two or more topics.
Big ideas of the unit
- Scarcity starts everything. Resources are limited and wants are not, so every choice gives something up. See Topic 1.1.
- Opportunity cost measures that choice: the next best alternative given up. On a PPC it is the size of the slope. See Topic 1.2.
- The PPC pictures scarcity. Points on it are efficient, inside waste resources, outside are unattainable. More or better resources or technology shift it outward.
- Rising opportunity cost bends the PPC and tilts supply. Specialised resources make each extra unit cost more, so the PPC bows out and producers supply more only at a higher price. See Topic 1.5.
- Different opportunity costs create gains from trade. Specialising by comparative advantage and trading at terms between the two costs lets both sides consume outside their PPCs. See Topic 1.3.
- Markets organise exchange. Demand slopes down, supply slopes up, and each has its own determinants. See Topic 1.4.
- Shift or movement? The good’s own price moves buyers and sellers along their curves; any other determinant shifts a curve.
- Prices clear markets. A surplus pushes the price down and a shortage pushes it up, until Qd = Qs. See Topic 1.6.
- A shortage is not scarcity. A shortage belongs to one market at one price; scarcity never ends.
Key relationships and methods
| Idea | Relationship or method | Topic |
|---|---|---|
| Opportunity cost per unit | Other good given up ÷ extra units gained | 1.2 |
| PPC shape | Constant cost → straight; increasing → bowed out; decreasing → bowed in | 1.2 |
| Output data | Cost of 1 X = max Y ÷ max X; larger output = absolute advantage | 1.3 |
| Input data (hours per unit) | Cost of 1 X = hours per X ÷ hours per Y; fewer hours = absolute advantage | 1.3 |
| Mutually beneficial terms of trade | Strictly between the two producers’ opportunity costs | 1.3 |
| Law of demand / law of supply | Price and Qd move in opposite directions; price and Qs move together | 1.4, 1.5 |
| Surplus / shortage | Qs − Qd above equilibrium / Qd − Qs below it, at one price | 1.6 |
| Equilibrium from equations | Set Qd = Qs, solve for P, then substitute to find Q | 1.6 |
| Two shifts at once | Certain where the effects agree; indeterminate where they conflict | 1.6 |
The questions
These are original Marlbridge practice questions, not past exam questions. The rubrics are a suggested Marlbridge rubric, not official scoring. All questions use Valdoria and Kestria, two fictional countries whose currency is the valda (VD); all data are fictional. Only the stated changes happen; markets are competitive.
Question 1 (multiple choice · mixed)
Valdoria’s straight-line PPC runs from 50 thousand phones to 200 thousand tonnes of sugar. It specialises in phones, exports 20 thousand of them for 100 thousand tonnes of sugar, and consumes 30 thousand phones and 100 thousand tonnes of sugar. Which statement is correct?
- (A) Valdoria now consumes at a point outside its PPC, although its PPC has not shifted.
- (B) Trade has shifted Valdoria’s PPC outward, so it could now produce this combination itself.
- (C) Valdoria gave up 4 tonnes of sugar for each phone it exported, so it gained nothing from trade.
- (D) The consumption point is inefficient, because it is not on Valdoria’s PPC.
Answer and explanation
Answer: (A). A phone costs Valdoria 200 ÷ 50 = 4 tonnes of sugar. Alone, with 30 thousand phones it could have at most 200 − 4 × 30 = 80 thousand tonnes; it now has 100. Resources and technology are unchanged, so the PPC stays put.
- (B) Trade changes what a country can consume, not what it can produce.
- (C) mixes up cost and price. Each phone exported earned 100 ÷ 20 = 5 tonnes, 1 more than it cost.
- (D) Inefficient points are inside the PPC.
Question 2 (multiple choice · mixed)
In Valdoria, mangoes and papayas are substitutes for buyers. A plant disease that attacks only mango trees destroys much of the mango harvest. Nothing else changes. What happens in the market for papayas?
- (A) Demand for papayas increases, so the equilibrium price and quantity of papayas both rise.
- (B) Supply of papayas decreases, so the price of papayas rises and the quantity falls.
- (C) Demand for papayas decreases, so the price and quantity of papayas both fall.
- (D) The quantity of papayas demanded rises along an unchanged demand curve, with no change in the price of papayas.
Answer and explanation
Answer: (A). The disease decreases the supply of mangoes, so the price of mangoes rises. Buyers switch to the substitute: demand for papayas increases, raising both its equilibrium price and quantity.
- (B) shifts the wrong curve: the disease hit mango trees, not papaya growers.
- (C) treats mangoes and papayas as complements.
- (D) A related good’s price shifts the papaya demand curve; only the papaya’s own price moves buyers along it.
Question 3 (constructed response · mixed)
Farmland in northern Valdoria can grow wheat or soybeans. The table shows points on the region’s PPC.
| Soybeans (thousand tonnes) | 0 | 10 | 20 | 30 | 40 | 50 |
|---|---|---|---|---|---|---|
| Wheat (thousand tonnes) | 90 | 85 | 76 | 61 | 36 | 0 |
(a) Calculate the opportunity cost of one tonne of soybeans for each step of 10 thousand tonnes. (b) Describe the shape of the PPC and explain why it has this shape. (c) Use (a) to explain why farmers supply more soybeans only at a higher price. (d) A new seed variety raises soybean yields on every field; wheat yields do not change. Explain the effect on the region’s PPC and on the supply of soybeans. (e) Later, the price of soybeans rises. A classmate says this shifts the soybean supply curve to the right. Explain the error.
Worked solution and suggested Marlbridge rubric
(a) Wheat given up ÷ 10 at each step: 5 ÷ 10 = 0.5, then 0.9, 1.5, 2.5 and 3.6 tonnes of wheat per tonne of soybeans.
(b) Opportunity cost increases, so the PPC is bowed outward. Land is not equally good for both crops: later soybeans use good wheat land, so each extra tonne costs more wheat.
(c) Each extra tonne costs more wheat than the last (0.5 rising to 3.6 tonnes). Farmers grow more only if the soybean price covers that higher cost, so the supply curve slopes upward.
(d) The PPC pivots outward along the soybean axis: the soybean intercept rises above 50 thousand tonnes, while the wheat intercept stays at 90 thousand tonnes. Each field now gives more soybeans for the same wheat given up, so the cost of a tonne of soybeans falls. Farmers offer more soybeans at every price: the supply of soybeans increases (shifts right).
(e) A good’s own price causes a movement along its supply curve: quantity supplied rises. Only a determinant shifts it.
| Point | What earns it |
|---|---|
| 1 | All five opportunity costs correct, with units |
| 1 | Bowed outward, linked to increasing opportunity cost |
| 1 | Reason: land is not equally suited to both crops |
| 1 | Rising cost of extra output means a higher price is needed, so supply slopes upward |
| 1 | PPC pivots outward along the soybean axis, with the wheat intercept unchanged |
| 1 | Soybean supply increases (right), because better technology lowers the cost of each tonne |
| 1 | Own-price change is a movement along the soybean supply curve, not a shift |
Total: 7 points. Accept values carried forward from (a). In (d), “supply increases” with no reason does not earn the supply point.
Question 4 (constructed response · mixed)
Valdoria and Kestria each have 120 hours of labour a day. The table shows the hours needed to make one unit.
| Country | Hours per basket | Hours per pot |
|---|---|---|
| Valdoria | 2 | 6 |
| Kestria | 3 | 4 |
Before trade, Valdoria makes and consumes 30 baskets and 10 pots a day; Kestria makes and consumes 16 baskets and 18 pots.
(a) Calculate each country’s maximum daily output of baskets and of pots, and identify the absolute advantage in each good. (b) Calculate each country’s opportunity cost of one pot, and identify which country has the comparative advantage in each good. (c) State the range of mutually beneficial terms of trade for one pot. (d) The countries specialise completely and Kestria sends 12 pots to Valdoria for 24 baskets. Calculate each country’s consumption after trade and its gain. (e) Show that both after-trade bundles lie outside the countries’ PPCs, and explain how this is possible.
Worked solution and suggested Marlbridge rubric
(a) Valdoria: 120 ÷ 2 = 60 baskets or 120 ÷ 6 = 20 pots. Kestria: 120 ÷ 3 = 40 baskets or 120 ÷ 4 = 30 pots. Valdoria has the absolute advantage in baskets (2 hours < 3); Kestria has it in pots (4 hours < 6).
(b) Cost of 1 pot = hours per pot ÷ hours per basket. Valdoria: 6 ÷ 2 = 3 baskets. Kestria: 4 ÷ 3 = 1.33 baskets. Kestria has the comparative advantage in pots. Valdoria’s cost of a basket is 1/3 pot against Kestria’s 3/4 pot, so Valdoria has it in baskets.
(c) One pot for more than 1.33 but fewer than 3 baskets.
(d) The rate is 24 ÷ 12 = 2 baskets per pot, inside the range. Valdoria makes 60 baskets, keeps 60 − 24 = 36 baskets, and gets 12 pots: a gain of 6 baskets and 2 pots. Kestria makes 30 pots, keeps 30 − 12 = 18 pots, and gets 24 baskets: a gain of 8 baskets, same pots.
(e) On its own, with 12 pots Valdoria could make at most 60 − 3 × 12 = 24 baskets; it now has 36. With 18 pots Kestria could make at most 40 − (4 ÷ 3) × 18 = 40 − 24 = 16 baskets; it now has 24. Both points are outside the PPCs, which have not moved. Specialising by comparative advantage raises total output from 46 to 60 baskets and from 28 to 30 pots, and trade shares the extra.
| Point | What earns it |
|---|---|
| 1 | All four maximum outputs, with absolute advantage: Valdoria baskets, Kestria pots |
| 1 | Opportunity costs of a pot (3 and 1.33 baskets) |
| 1 | Comparative advantage: Kestria pots, Valdoria baskets |
| 1 | Range 1.33 to 3 baskets per pot |
| 1 | Both after-trade bundles and gains correct |
| 1 | Both bundles compared with the most each country could have alone (24 and 16 baskets) |
| 1 | Explains that the PPCs are unchanged and the gain comes from specialising by comparative advantage |
Total: 7 points. Accept values carried forward. In (b), using the output rule on hours data earns no point.
Question 5 (constructed response · mixed)
The weekly market for boxes of floor tiles in a Valdorian city is Qd = 200 − 10P and Qs = 20P − 40, where quantities are in hundreds of boxes and P is in valdas.
(a) Calculate the equilibrium price and quantity. (b) Calculate the shortage or surplus at VD 6, and explain how the price adjusts. (c) A building boom brings many new buyers, and demand becomes Qd = 260 − 10P. Calculate the shortage at the original equilibrium price, and the new equilibrium. (d) Draw a correctly labelled graph showing the change in (c), with P₁, Q₁, P₂ and Q₂ on the axes. (e) A newspaper writes: “The supply of tiles increased this year, because sales rose from 12,000 to 16,000 boxes a week.” Explain the error.
Worked solution and suggested Marlbridge rubric
(a) 200 − 10P = 20P − 40, so 240 = 30P and P = VD 8. Q = 200 − 80 = 120 hundred boxes (12,000 boxes).
(b) At VD 6: Qd = 140, Qs = 80, a shortage of 60 hundred boxes. Buyers bid the price up; Qd falls and Qs rises along the curves until equal at VD 8.
(c) At VD 8 the new Qd = 260 − 80 = 180, and Qs = 120: a shortage of 60 hundred boxes. New equilibrium: 260 − 10P = 20P − 40, so P = VD 10 and Q = 160 hundred boxes. More buyers shift demand right.
(d) Axes “Price” and “Quantity of tiles”. D₁ and S cross at P₁ = 8, Q₁ = 120. D₂ lies to the right of D₁ (arrow), giving P₂ = 10 and Q₂ = 160. S does not move.
(e) Nothing on the sellers’ side changed. Demand rose, the price rose, and sellers moved up along the same supply curve: quantity supplied rose, not supply.
| Point | What earns it |
|---|---|
| 1 | P = VD 8 and Q = 120 hundred boxes |
| 1 | Shortage of 60 at VD 6, with the price rising as Qd falls and Qs rises |
| 1 | Shortage of 60 at VD 8 after the shift |
| 1 | New equilibrium VD 10 and 160 hundred boxes |
| 1 | Labelled axes, D₁, D₂ and S, with D₂ to the right and S unchanged |
| 1 | P₂ above P₁ and Q₂ to the right of Q₁, marked on the axes |
| 1 | Higher sales are a rise in quantity supplied along the same supply curve, not a change in supply |
Total: 7 points. In (b), “demand falls” for “quantity demanded falls” earns no point.
Question 6 (constructed response · mixed)
A cyclone hits Kestria’s coast and wrecks many ports, warehouses, bridges and a large cement plant. Kestria produces capital goods and consumer goods.
(a) Identify the economic resource destroyed, and explain why Kestria’s insurance money is not this resource. (b) Draw a correctly labelled PPC for Kestria and show the effect of the cyclone. On the same graph, label a point R to show output if many workers are also left unemployed for a time. (c) In Kestria’s cement market, the cyclone decreases supply and rebuilding increases demand. Explain the effect on equilibrium price and quantity. (d) At the old price, shops run out of cement. A minister says this proves cement is scarce. Explain what is happening, and why the minister is wrong.
Worked solution and suggested Marlbridge rubric
(a) Capital: human-made goods used in production. Insurance money can pay to rebuild capital, but money produces nothing by itself.
(b) Axes “Capital goods” and “Consumer goods”; bowed-out PPC₁ and PPC₂ inside it, with an arrow showing the inward shift. Point R lies inside PPC₂: lost capital cuts capacity, but unemployed workers still exist, so they do not shift the curve again.
(c) Both shifts push the price up, so the equilibrium price rises. Lower supply cuts quantity and higher demand raises it, so the change in quantity is indeterminate without the sizes of the shifts.
(d) At the old price Qd > Qs: a shortage, which ends as the price rises to equilibrium. Cement was scarce before the cyclone and will stay scarce after the price adjusts, because making it uses limited resources. The shortage shows only that the price is below equilibrium.
| Point | What earns it |
|---|---|
| 1 | Capital, with money explained as able to buy capital but not produce |
| 1 | Labelled axes and an inward shift of the PPC |
| 1 | Point R inside the new PPC |
| 1 | Price rises because both shifts push it up |
| 1 | Quantity indeterminate because the effects conflict |
| 1 | Shortage at the old price, removed by a rising price |
| 1 | Contrasts the shortage with scarcity, which is permanent and economy-wide |
Total: 7 points. In (c), “price rises and quantity falls” earns the price point only.
How did you do?
- Q1 or Q4 lost marks: opportunity cost and trade. Tick off the Topic 1.2 checklist and the Topic 1.3 checklist.
- Q6(a), (d) lost marks: scarcity, resources and shortages. Use the Topic 1.1 checklist.
- Q2, Q5(c) or Q5(e) lost marks: shifts and movements. Use the Topic 1.4 checklist and the Topic 1.5 checklist.
- Q3 lost marks: PPC shape and supply. Use the Topic 1.2 and 1.5 checklists.
- Q5 or Q6(c) lost marks: equilibrium and double shifts. Use the Topic 1.6 checklist.
If several topics still feel shaky, go back to the Unit 1 diagnostic and follow its “Your next step” table.