These are original Marlbridge practice questions, not past exam questions. The mark points are a suggested Marlbridge rubric to help you check your work; they are not an official scoring guideline. All businesses and data are fictional. Only addition, subtraction, multiplication and division are needed, so a four-function calculator is enough. Give elasticities to 2 decimal places unless they are exact.
Question 1 (multiple choice · foundation)
The price of handwoven rugs rises from $190 to $210. Weavers increase the quantity supplied from 40 to 60 rugs per month. Using the midpoint method, what is the price elasticity of supply?
- (A) 0.25
- (B) 1.00
- (C) 4.00
- (D) 4.75
Answer and explanation
Answer: (C). % change in Qs = (60 − 40) ÷ 50 × 100 = 40%. % change in P = (210 − 190) ÷ 200 × 100 = 10%. PES = 40 ÷ 10 = 4.00: elastic.
- (A) divides the wrong way round: 10 ÷ 40 = 0.25.
- (B) divides the raw changes: 20 rugs ÷ $20 = 1. That ignores percentages.
- (D) uses the starting values instead of the averages: (20 ÷ 40) ÷ (20 ÷ 190) = 50% ÷ 10.53% = 4.75. The midpoint method avoids this, so the answer does not depend on the direction of the change.
Question 2 (multiple choice · core)
For which good is the price elasticity of supply likely to be largest?
- (A) Tickets for one concert in a hall that is already sold out
- (B) Beachfront land on a small island
- (C) Plain cotton T-shirts made in factories with spare capacity, using cotton that is easy to buy at a stable price
- (D) Bottles of a wine made from one year’s grape harvest, ten years ago
Answer and explanation
Answer: (C). Spare capacity and easily bought inputs at a steady price let producers raise output quickly without a sharp rise in cost, so quantity supplied responds strongly to price.
- (A) has a fixed number of seats on the night, so supply is perfectly inelastic.
- (B) cannot be increased: the quantity of land is fixed.
- (D) cannot be increased either: the harvest from that year is fixed, so only the existing bottles can be sold.
Question 3 (multiple choice · core)
Which statement best explains why the supply of a manufactured good is usually more elastic in the long run than in the short run?
- (A) In the long run, consumers find more substitutes for the good.
- (B) In the long run, firms can build new capacity and new firms can enter the market.
- (C) In the long run, the price of the good always rises.
- (D) In the long run, the demand curve becomes flatter.
Answer and explanation
Answer: (B). Supply elasticity depends on how easily sellers can change output. Over time, all inputs can change: firms add machines and buildings, train workers, and new firms join the market.
- (A) describes why demand becomes more elastic over time, not supply.
- (C) is not true in general, and a rising price is a movement along supply, not a reason for a different elasticity.
- (D) is again about demand. The elasticity of supply depends on the sellers’ side of the market.
Question 4 (calculation · core)
Harlow Ridge Solar, a fictional installer, has this monthly supply schedule:
| Price ($ per installation day) | 200 | 300 | 400 | 500 |
|---|---|---|---|---|
| Quantity supplied (installation days per month) | 20 | 50 | 80 | 110 |
(a) Calculate PES from $200 to $300 and from $400 to $500, using the midpoint method. (b) Classify supply in each range. (c) Each $100 rise adds the same 30 installation days. Explain why PES is not the same in the two ranges.
Worked solution
(a) $200 → $300: % change in Qs = 30 ÷ 35 × 100 = 85.71%. % change in P = 100 ÷ 250 × 100 = 40%. PES = 85.71 ÷ 40 = 2.14.
$400 → $500: % change in Qs = 30 ÷ 95 × 100 = 31.58%. % change in P = 100 ÷ 450 × 100 = 22.22%. PES = 31.58 ÷ 22.22 = 1.42.
(b) Both are greater than 1: supply is elastic in both ranges, but more elastic at lower prices.
(c) Elasticity uses percentage changes, not raw changes. At low prices, 30 extra days is a large percentage of a small quantity (average 35). At higher prices, the same 30 days is a smaller percentage of a larger quantity (average 95). The percentage change in price also falls, but not by as much. The slope is constant; the elasticity is not.
Suggested mark points (4): 1 for 2.14 with both percentages shown; 1 for 1.42; 1 for both classified as elastic; 1 for explaining that equal raw changes give different percentage changes.
Optional check: extending the line backwards, quantity supplied would reach zero at about $133, so the line starts on the price axis. That fits the background rule in the study guide: elastic at every price.
Question 5 (graph · core)
Bloomfield Growers, a fictional flower farm, sells 1,000 bunches of tulips per week at $5 per bunch. If the price rises to $6 and stays there, it can supply 1,050 bunches per week within a month, or 1,400 bunches per week after two years.
(a) Calculate PES for the short run and the long run. (b) On one correctly labelled graph, draw a short-run supply curve and a long-run supply curve through the starting point. Mark the quantities supplied at $6. (c) Explain why the two curves differ.
Model answer and suggested Marlbridge rubric
(a) % change in P = 1 ÷ 5.5 × 100 = 18.18% in both cases.
Short run: % change in Qs = 50 ÷ 1,025 × 100 = 4.88%. PES = 4.88 ÷ 18.18 = 0.27 (inelastic).
Long run: % change in Qs = 400 ÷ 1,200 × 100 = 33.33%. PES = 33.33 ÷ 18.18 = 1.83 (elastic).
(b) Vertical axis: “Price ($ per bunch)”. Horizontal axis: “Quantity of tulips (bunches per week)”. Both curves pass through (1,000, $5). The short-run curve, labelled S(SR), is steep and reaches 1,050 at $6. The long-run curve, labelled S(LR), is flatter and reaches 1,400 at $6. Mark both points at $6 with a dashed guide line.
(c) Within a month the farm has a fixed amount of greenhouse space and bulbs take time to grow, so output can rise only a little. Over two years it can build more greenhouses, plant more bulbs and hire staff, and other growers can enter, so quantity supplied responds much more.
| Point | What earns it |
|---|---|
| 1 | Both elasticities correct with midpoint working |
| 1 | Axes labelled with variable and unit; both curves through (1,000, $5), each labelled |
| 1 | Short-run curve steeper than long-run, with 1,050 and 1,400 marked at $6 |
| 1 | Difference explained by time to change fixed inputs or for new firms to enter |
Do not award the third point if the long-run curve is drawn steeper than the short-run curve.
Question 6 (constructed response · core)
The price of wooden chairs rises by 10%. Two fictional workshops respond:
- Oakline Workshop uses pine bought from many local timber yards at a steady price and has unused workbenches. Its quantity supplied rises by 18%.
- Walnut & Grain uses a rare walnut timber whose price rises steeply when buyers try to buy more. It already works at full capacity. Its quantity supplied rises by 4%.
(a) Calculate PES for each workshop. (b) Classify each. (c) Explain the difference using two factors that affect supply elasticity. (d) Walnut & Grain finds a plentiful alternative hardwood at a stable price and its PES rises to 1.2. Predict its percentage increase in quantity supplied for a 10% price rise.
Model answer and suggested Marlbridge rubric
(a) Oakline: PES = 18 ÷ 10 = 1.8. Walnut & Grain: PES = 4 ÷ 10 = 0.4.
(b) Oakline is elastic (1.8 > 1). Walnut & Grain is inelastic (0.4 < 1).
(c) Inputs: Oakline can buy extra pine at a steady price, so its costs do not jump as it expands. Walnut & Grain must pay a steeply rising price for extra walnut, so each extra chair costs much more to make. Spare capacity: Oakline has unused workbenches, so it can raise output at once. Walnut & Grain is already at full capacity and would need new space and equipment first.
(d) % change in Qs = PES × % change in P = 1.2 × 10 = 12%.
| Point | What earns it |
|---|---|
| 1 | Both elasticities correct |
| 1 | Both classified correctly |
| 1 | Input factor explained in context (price or availability of extra or alternative inputs) |
| 1 | Capacity (or another valid supply factor) explained in context |
| 1 | 12% |
Do not accept explanations based on buyers’ substitutes or tastes: those affect demand, not supply.
Question 7 (explanation · stretch)
Two fictional firms have straight-line supply curves:
- Firm R: Qs = 25 × P
- Firm T: Qs = 600 + 40 × P
(Qs is in units per week and P in dollars.)
(a) Calculate Firm R’s PES from $4 to $8 and from $10 to $12. What do you notice? (b) Calculate Firm T’s PES from $5 to $10 and from $20 to $25. Classify each. (c) Firm T’s price rises from $5 to $10. Calculate its revenue before and after, and explain why there is no “total revenue test” for supply.
Model answer and suggested Marlbridge rubric
(a) $4 → $8: Qs goes from 100 to 200. % change in Qs = 100 ÷ 150 × 100 = 66.67%. % change in P = 4 ÷ 6 × 100 = 66.67%. PES = 1.
$10 → $12: Qs goes from 250 to 300. % change in Qs = 50 ÷ 275 × 100 = 18.18%. % change in P = 2 ÷ 11 × 100 = 18.18%. PES = 1.
Firm R is unit elastic in both ranges. Its quantity supplied is always 25 times the price, so the two always change by the same percentage. Any straight-line supply curve through the origin behaves like this.
(b) $5 → $10: Qs goes from 800 to 1,000. % change in Qs = 200 ÷ 900 × 100 = 22.22%. % change in P = 5 ÷ 7.5 × 100 = 66.67%. PES = 0.33: inelastic.
$20 → $25: Qs goes from 1,400 to 1,600. % change in Qs = 200 ÷ 1,500 × 100 = 13.33%. % change in P = 5 ÷ 22.5 × 100 = 22.22%. PES = 0.6: inelastic.
Firm T’s supply starts on the quantity axis (600 units at a price of zero), so it is inelastic at every price, though less so at higher prices.
(c) Revenue at $5 = 5 × 800 = $4,000. At $10 = 10 × 1,000 = $10,000. Along a supply curve, price and quantity supplied rise together, so revenue always rises when the price rises, whatever the elasticity. The total revenue test is useful for demand because there price and quantity move in opposite directions.
| Point | What earns it |
|---|---|
| 1 | Both of Firm R’s values equal 1, with working |
| 1 | Explains that proportional quantity and price give unit elasticity |
| 1 | Firm T: 0.33 and 0.6, both inelastic |
| 1 | Revenue $4,000 and $10,000, with the reason there is no revenue test for supply |
How did you do?
- Q1, Q4 or Q7 calculations wrong: re-read “The midpoint method for supply” and Worked example 1 in the study guide. Convert both changes to percentages before dividing.
- Q2, Q3 or Q6 wrong: re-read “What makes supply more or less elastic”. Check you used sellers’ factors, not buyers’.
- Q5 marked down: re-read Worked example 2 and Figure 3. The long-run curve is the flatter one.
- Q7 explanations incomplete: re-read “Shape of the supply curve” and Figure 2.
Then tick off the topic checklist.