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 places, businesses and data are fictional. Only addition, subtraction, multiplication and division are needed, so a four-function calculator is enough.
Questions 1, 4 and 5 use the daily market for kayak rental at Calder Bay, a fictional lake resort. P is the price in dollars per hour and Q is hours of kayak rental per day.
- Demand: Qd = 300 − 10P
- Supply: Qs = 20P − 60
| Price ($ per hour) | 8 | 10 | 12 | 14 | 16 |
|---|---|---|---|---|---|
| Quantity demanded (hours per day) | 220 | 200 | 180 | 160 | 140 |
| Quantity supplied (hours per day) | 100 | 140 | 180 | 220 | 260 |
The equilibrium is $12 and 180 hours. Consumer surplus there is $1,620 and producer surplus is $810.
Question 1 (multiple choice · foundation)
At a price of $10 per hour, the Calder Bay kayak market has:
- (A) a shortage of 60 hours per day
- (B) a surplus of 60 hours per day
- (C) a shortage of 200 hours per day
- (D) a shortage of $2 per hour
Answer and explanation
Answer: (A). At $10, Qd = 200 and Qs = 140. Qd > Qs, so there is a shortage of 200 − 140 = 60 hours. This fits the rule: $10 is below the equilibrium price of $12.
- (B) gets the size right but the direction wrong. A surplus needs Qs > Qd, which only happens above $12.
- (C) gives the level of quantity demanded, not the gap between Qd and Qs.
- (D) measures the gap between the price and the equilibrium price. A shortage is a quantity, measured in hours, not dollars.
Question 2 (multiple choice · core)
In Norrin, a fictional city, two things happen in the market for rented electric scooters. Bus fares double, and a new battery design cuts the cost of running each scooter. Electric scooter rides and bus rides are substitutes. What happens to the equilibrium in the scooter market?
- (A) Price rises and quantity rises.
- (B) Price falls and the change in quantity is indeterminate.
- (C) Quantity rises and the change in price is indeterminate.
- (D) Both the price change and the quantity change are indeterminate.
Answer and explanation
Answer: (C). Dearer buses raise the demand for scooter rides (D shifts right). Cheaper running costs raise supply (S shifts right). Both shifts raise quantity. Demand pushes price up and supply pushes it down, so the price change depends on which shift is larger.
- (A) looks only at the demand shift and ignores the supply increase.
- (B) has the indeterminate variable the wrong way round. That pattern fits demand falling while supply rises.
- (D) is wrong because both shifts push quantity in the same direction, so quantity is certain to rise.
Question 3 (multiple choice · core)
A disease kills many of the bees that pollinate an orchard crop, so the supply of the fruit decreases. In which case will the equilibrium price rise the most and the equilibrium quantity fall the least?
- (A) Demand for the fruit is perfectly elastic.
- (B) Demand for the fruit is elastic.
- (C) Demand for the fruit is unit elastic.
- (D) Demand for the fruit is highly inelastic.
Answer and explanation
Answer: (D). When demand is highly inelastic, buyers keep buying almost the same quantity even at a much higher price. A leftward supply shift then shows up mainly as a large price rise and only a small fall in quantity.
- (A) is the opposite extreme: with a horizontal demand curve the price cannot change at all, and the whole effect is a fall in quantity.
- (B) gives a smaller price rise and a larger quantity fall than (D), because buyers cut back strongly as the price rises.
- (C) lies between (B) and (D), so it is not the case with the largest price change.
Question 4 (calculation · core)
A storm damages part of Calder Bay’s fleet. At every price, the resort can now offer 60 fewer hours of rental per day, so supply becomes Qs = 20P − 120. Demand is unchanged.
(a) What happens at the old price of $12? (b) Find the new equilibrium price and quantity. (c) Calculate the change in consumer surplus, producer surplus and total surplus.
Worked solution
(a) At $12, Qd = 180 but now Qs = 20 × 12 − 120 = 120. There is a shortage of 60 hours, so the price is bid up.
(b) 300 − 10P = 20P − 120, so 420 = 30P and P = $14. Q = 300 − 140 = 160 hours. Check: 20 × 14 − 120 = 160. ✓
(c) Demand meets the price axis at $30. The new supply curve meets it at 120 ÷ 20 = $6.
| Before | After | Change | |
|---|---|---|---|
| Consumer surplus | ½ × 180 × (30 − 12) = $1,620 | ½ × 160 × (30 − 14) = $1,280 | −$340 |
| Producer surplus | ½ × 180 × (12 − 3) = $810 | ½ × 160 × (14 − 6) = $640 | −$170 |
| Total surplus | $2,430 | $1,920 | −$510 |
Suggested mark points (4): 1 for the shortage of 60 at $12; 1 for $14 and 160 hours; 1 for both new surplus areas using the correct intercepts ($30 and $6); 1 for all three changes with signs.
Common error: using the old supply intercept ($3) for producer surplus after the shift. After the storm, producer surplus is measured above the new supply curve.
Question 5 (graph · core)
For a holiday weekend, Calder Bay prints leaflets with a fixed price of $16 per hour and cannot change it until Monday.
(a) Draw a correctly labelled graph of the market. Show the equilibrium, the price of $16, and the size of any shortage or surplus. (b) How many hours are rented at $16? Calculate consumer surplus, producer surplus and the loss of total surplus compared with equilibrium. Assume the hours are rented by the customers who value them most. (c) Explain what happens after Monday, when the price can change again.
Model answer and suggested Marlbridge rubric
(a) Horizontal axis: “Quantity of kayak rental (hours per day)”. Vertical axis: “Price ($ per hour)”. Downward-sloping D from $30; upward-sloping S from $3; they cross at E ($12, 180 hours). A horizontal line at $16 meets D at 140 and S at 260. Label the gap surplus = 260 − 140 = 120 hours.
(b) Hours rented = the smaller of 140 and 260 = 140 hours.
- CS = ½ × 140 × (30 − 16) = $980.
- On the supply curve, 140 hours need a price of (140 + 60) ÷ 20 = $10. PS = 140 × (16 − 10) + ½ × 140 × (10 − 3) = 840 + 490 = $1,330.
- Total surplus = 980 + 1,330 = $2,310. Loss = 2,430 − 2,310 = $120. Check: ½ × (180 − 140) × (16 − 10) = $120. ✓
(c) With unused kayaks, the resort lowers the price. As the price falls, quantity demanded rises along D and quantity supplied falls along S. The surplus shrinks until the market returns to $12 and 180 hours, and the $120 of lost surplus is recovered.
| Point | What earns it |
|---|---|
| 1 | Both axes labelled with units; D and S correctly sloped and labelled; equilibrium at $12 and 180 shown |
| 1 | $16 above equilibrium with Qd = 140 and Qs = 260 marked and the gap labelled a surplus of 120 |
| 1 | 140 hours traded, with CS = $980 and PS = $1,330 |
| 1 | Loss of $120 |
| 1 | Price falls; quantity demanded rises and quantity supplied falls, with no shift of either curve |
Note that producer surplus at $16 ($1,330) is higher than at equilibrium ($810). The resort gains on the hours it does rent, but customers lose more ($1,620 − $980 = $640) than the resort gains ($520).
Question 6 (constructed response · core)
In Verano, a fictional country, a frost destroys a large part of the orange harvest. In the same week, a widely reported study says that drinking fresh orange juice helps people recover from colds.
(a) State the effect of each event on the market for fresh orange juice, and the combined effect on equilibrium price and quantity. (b) What must be true for the equilibrium quantity of juice to rise? (c) A journalist writes: “The frost has created a shortage of orange juice that will last until next year’s harvest.” Evaluate this statement for a competitive market.
Model answer and suggested Marlbridge rubric
(a) The frost reduces the oranges available to make juice, so supply decreases (S shifts left). The study changes tastes in favour of juice, so demand increases (D shifts right). Both shifts push the price up, so the equilibrium price rises. The supply decrease lowers quantity and the demand increase raises it, so the change in quantity is indeterminate.
(b) The increase in demand must be larger than the decrease in supply (measured as the horizontal shift at a given price), so that the rightward pull on quantity outweighs the leftward pull.
(c) The journalist is mostly wrong. At the old price there would be a shortage, because quantity demanded would be greater than the reduced quantity supplied. But in a competitive market the shortage makes buyers bid the price up. As the price rises, quantity demanded falls and quantity supplied rises until they are equal at a new, higher equilibrium. The good becomes scarcer and dearer, but there is no lasting shortage. A shortage could last only if something stopped the price from rising.
| Point | What earns it |
|---|---|
| 1 | Frost decreases supply and the study increases demand |
| 1 | Price rises; quantity indeterminate, with the reason |
| 1 | Quantity rises only if the demand increase is larger than the supply decrease |
| 1 | Shortage exists only at the old price and is removed as the price rises |
| 1 | Distinguishes a higher price (or greater scarcity) from a lasting shortage |
Question 7 (explanation · stretch)
Two fictional towns, Ashby and Brook, have identical supply curves for firewood: Qs = 4P − 100, where P is dollars per load and Q is loads per month. Demand in Ashby is Qd = 200 − 2P. Demand in Brook is Qd = 300 − 4P. Both markets start in equilibrium at $50 and 100 loads.
A new tax on forest clearing reduces supply in both towns by 60 loads at every price, so supply becomes Qs = 4P − 160.
(a) Find the new equilibrium price and quantity in each town. (b) Which town has the more elastic demand at the starting point? Show how your answers to (a) support this. (c) Calculate the change in producer surplus in each town and explain the difference.
Model answer and suggested Marlbridge rubric
(a)
- Ashby: 200 − 2P = 4P − 160, so 360 = 6P, P = $60 and Q = 80 loads.
- Brook: 300 − 4P = 4P − 160, so 460 = 8P, P = $57.50 and Q = 70 loads.
(b) Brook. At $50 and 100 loads, a $1 price rise cuts quantity demanded by 4 loads in Brook but only 2 in Ashby, so Brook’s buyers respond more strongly. (Point elasticity at the start: Brook 4 × 50 ÷ 100 = 2.0; Ashby 2 × 50 ÷ 100 = 1.0.) The results confirm it: in Brook the price rose by only $7.50 but quantity fell by 30 loads; in Ashby the price rose by $10 and quantity fell by only 20 loads.
(c) Before the shift, producer surplus in both towns is ½ × 100 × (50 − 25) = $1,250. After it, the supply curve starts at $40.
- Ashby: ½ × 80 × (60 − 40) = $800, a fall of $450.
- Brook: ½ × 70 × (57.50 − 40) = $612.50, a fall of $637.50.
Sellers in Brook lose more. Because Brook’s buyers are more price-sensitive, sellers there cannot pass much of their higher costs on as a higher price. They sell less and receive a smaller price rise, so more of the loss falls on them.
| Point | What earns it |
|---|---|
| 1 | Both new equilibria correct |
| 1 | Brook identified as more elastic, with a reason (stronger quantity response to price, or the elasticity values) |
| 1 | Uses the results: smaller price rise and larger quantity fall in Brook |
| 1 | Both PS changes correct, using the new supply intercept of $40 |
| 1 | Explains that sellers bear more of the loss when demand is more elastic |
Accept midpoint elasticities between the old and new equilibria (Ashby about 1.22, Brook about 2.53) as the evidence in (b).
How did you do?
- Q1 or Q5(a) wrong: re-read “Shortages and surpluses” and Figure 1 in the study guide. Below equilibrium means shortage; above means surplus.
- Q4 or Q5(b) wrong: re-read Worked example 2 and “Surplus lost while the market is out of equilibrium”. Use the curve that applies after the change.
- Q2 or Q6 wrong: re-read “When both curves shift”. Name the indeterminate variable.
- Q3 or Q7 incomplete: re-read “Elasticity decides the size of the change”.
Then tick off the topic checklist.