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, markets and data are fictional. Only addition, subtraction, multiplication and division are needed, so a four-function calculator is enough.
Questions 4, 5 and 7 use the weekly market for mangoes in Dunlay, a fictional country. P is dollars per crate and Q is thousands of crates per week.
- Demand: Qd = 150 − 3P
- Supply: Qs = 6P − 120
Without intervention the equilibrium is $30 and 60 thousand crates, with consumer surplus of $600 thousand and producer surplus of $300 thousand per week.
Question 1 (multiple choice · foundation)
The weekly rice market in Ossory, a fictional town, is shown below (bags per week).
| Price ($ per bag) | 24 | 26 | 28 | 30 | 32 | 34 |
|---|---|---|---|---|---|---|
| Quantity demanded | 420 | 380 | 340 | 300 | 260 | 220 |
| Quantity supplied | 120 | 180 | 240 | 300 | 360 | 420 |
The council sets a price ceiling of $26 per bag. Which statement is correct?
- (A) There is a shortage of 200 bags, and 180 bags are bought and sold.
- (B) There is a surplus of 200 bags, and 180 bags are bought and sold.
- (C) There is a shortage of 200 bags, and 380 bags are bought and sold.
- (D) The ceiling has no effect, because it is below the equilibrium price.
Answer and explanation
Answer: (A). The equilibrium is $30 and 300 bags. A ceiling of $26 is below it, so it binds. At $26, Qd = 380 and Qs = 180: a shortage of 380 − 180 = 200 bags. Sellers cannot be made to sell more than 180, so 180 bags are traded.
- (B) has the direction wrong. A binding ceiling keeps the price low, which causes a shortage, not a surplus.
- (C) uses quantity demanded as the amount traded. Buyers cannot buy rice that is not supplied.
- (D) reverses the rule. A ceiling has an effect only when it is below equilibrium.
Question 2 (multiple choice · core)
Demand for a fictional life-saving medicine, Ventrol, is perfectly inelastic. Supply is upward sloping. The government places a $4 per-unit tax on sellers of Ventrol. Which outcome follows?
- (A) Buyers bear the whole $4, the quantity sold does not change, and there is no deadweight loss.
- (B) Sellers bear the whole $4, because the tax is collected from sellers.
- (C) Buyers and sellers each bear $2, and the quantity sold falls.
- (D) Buyers bear the whole $4, and the quantity sold falls, creating a deadweight loss.
Answer and explanation
Answer: (A). With a vertical demand curve, buyers buy the same quantity whatever the price. When supply shifts up by $4, the price rises by the full $4, so buyers bear all of it. The quantity does not change, so no trades are lost and there is no deadweight loss.
- (B) confuses who hands over the tax with who bears it. Incidence depends on elasticities.
- (C) would fit demand and supply that are equally elastic, not perfectly inelastic demand.
- (D) gets the incidence right but forgets that quantity cannot fall when demand is perfectly inelastic. Without a fall in quantity there is no deadweight loss.
Question 3 (multiple choice · core)
The city of Pellow, a fictional city, limits taxi licences so that the number of taxi rides is below the equilibrium quantity. Compared with the free-market equilibrium, which is correct?
- (A) Fares rise, the number of rides falls, and there is a deadweight loss.
- (B) Fares fall, because there are fewer taxis competing for passengers.
- (C) There is a permanent surplus of taxi rides.
- (D) The supply curve shifts to the right, so fares fall and rides rise.
Answer and explanation
Answer: (A). At the restricted quantity, passengers are willing to pay more than the fare that would just cover drivers’ costs, so fares rise to the demand price. Rides that are worth more to passengers than they cost to provide no longer happen: a deadweight loss. The gap between fare and cost goes to licence holders.
- (B) reverses the effect of less competition. Fewer rides means buyers bid fares up.
- (C) is wrong because the quota cuts the quantity supplied; it does not create unsold rides at the market fare.
- (D) has the shift the wrong way. A quota restricts supply; it does not increase it.
Question 4 (calculation · core)
Dunlay introduces a $6 per-crate tax on mango sellers.
(a) Find the price buyers pay, the price sellers keep and the new quantity. (b) Calculate the share of the tax borne by buyers and by sellers, and explain it using elasticity. (c) Calculate tax revenue, the new consumer and producer surplus, and the deadweight loss.
Worked solution
(a) New supply: Qs = 6(P − 6) − 120 = 6P − 156. Then 150 − 3P = 6P − 156, so 306 = 9P and P = $34 (buyers). Sellers keep 34 − 6 = $28. Q = 150 − 102 = 48 thousand crates. Check: 6 × 28 − 120 = 48. ✓
(b) Buyers pay $4 more (two-thirds); sellers keep $2 less (one-third). At the original equilibrium, demand elasticity = 3 × 30 ÷ 60 = 1.5 and supply elasticity = 6 × 30 ÷ 60 = 3.0. Demand is less elastic, so buyers bear more.
(c)
- Revenue = 6 × 48 = $288 thousand.
- CS = ½ × 48 × (50 − 34) = $384 thousand (down $216 thousand). Demand meets the price axis at $50.
- PS = ½ × 48 × (28 − 20) = $192 thousand (down $108 thousand). Supply meets it at $20.
- DWL = ½ × 6 × (60 − 48) = $36 thousand. Check: 384 + 192 + 288 + 36 = 900. ✓
Suggested mark points (5): 1 for both prices; 1 for 48 thousand; 1 for both shares with the elasticity reason; 1 for revenue and both surplus values; 1 for DWL.
Common error: calculating producer surplus with the buyers’ price ($34). Sellers only keep $28.
Question 5 (graph · core)
To support farmers, Dunlay instead sets a price floor of $36 per crate of mangoes.
(a) Draw a correctly labelled graph showing the floor, the quantities demanded and supplied, and the deadweight loss. (b) Calculate the surplus of mangoes, consumer surplus, producer surplus and deadweight loss. (c) The government offers to buy every unsold crate at $36. How much does this cost per week, and why does it not remove the deadweight loss?
Model answer and suggested Marlbridge rubric
(a) Axes: “Quantity of mangoes (thousand crates per week)” and “Price ($ per crate)”. D slopes down from $50; S slopes up from $20; they cross at $30 and 60 thousand. A horizontal line at $36, above equilibrium, labelled “price floor”. It meets D at 42 and S at 96; label the gap surplus = 54. Shade the DWL triangle between 42 and 60 thousand, between D above and S below, pointing to the equilibrium.
(b) Surplus = 96 − 42 = 54 thousand crates. Only 42 thousand are sold.
- CS = ½ × 42 × (50 − 36) = $294 thousand.
- On the supply curve, 42 thousand crates need (42 + 120) ÷ 6 = $27. PS = 42 × (36 − 27) + ½ × 42 × (27 − 20) = 378 + 147 = $525 thousand.
- DWL = ½ × (60 − 42) × (36 − 27) = $81 thousand. Check: 294 + 525 + 81 = 900. ✓
(c) Cost = 54 × 36 = $1,944 thousand per week. Buying the crates does not bring back the lost trades between buyers and sellers. Farmers now grow 96 thousand crates, many of which cost more to grow than any buyer would pay, so the overall loss to society gets larger, not smaller.
| Point | What earns it |
|---|---|
| 1 | Axes labelled with units; D and S correct; floor drawn above equilibrium |
| 1 | Qd = 42 and Qs = 96 marked, gap labelled as a surplus |
| 1 | DWL triangle in the right place |
| 1 | CS, PS and DWL correct |
| 1 | Cost of $1,944 thousand and a reason the purchase does not remove inefficiency |
Question 6 (constructed response · core)
In Corrin, a fictional city, the market rent for a flat is $1,000 per month, and 40 thousand flats are rented. The council sets a rent ceiling of $800. In the first year, 46 thousand flats are demanded and 38 thousand are supplied. After five years, demand at $800 is still 46 thousand, but only 30 thousand flats are offered, as landlords turn flats into offices and few new flats are built.
(a) Is the ceiling binding? Calculate the shortage in the first year and after five years. (b) Explain why the shortage grows over time, using the idea of elasticity. (c) Describe two ways flats may be allocated when the price cannot rise, and one effect on the quality of flats. (d) Explain why deadweight loss is larger after five years.
Model answer and suggested Marlbridge rubric
(a) Yes: $800 is below the $1,000 equilibrium. Shortage in year one = 46 − 38 = 8 thousand flats. After five years = 46 − 30 = 16 thousand flats.
(b) Supply of flats is more elastic in the long run. In the first year, landlords cannot quickly change the number of flats, so quantity supplied falls only a little (40 to 38 thousand). Over time they convert flats to other uses and build fewer new ones, so quantity supplied falls further (to 30 thousand). The same rent cut causes a larger fall in quantity supplied, so the shortage grows.
(c) Any two allocation methods: waiting lists; queues or searching time; landlords choosing tenants they favour; illegal side payments (“key money”) above the ceiling; flats passed to friends and relatives. Quality effect: landlords have less reason to spend on repairs, because they cannot charge more and tenants are easy to find.
(d) Fewer flats are rented after five years (30 thousand instead of 38 thousand, against 40 thousand at equilibrium). More rentals that tenants value above landlords’ costs no longer happen, so the deadweight loss triangle is wider.
| Point | What earns it |
|---|---|
| 1 | Binding, with both shortages (8 and 16 thousand) |
| 1 | Long-run supply more elastic, linked to the larger fall in quantity supplied |
| 1 | Two valid non-price allocation methods |
| 1 | A quality effect with a reason |
| 1 | DWL larger because the quantity traded falls further below equilibrium |
Question 7 (explanation · stretch)
Dunlay replaces all its mango policies with a $9 per-crate subsidy paid to sellers.
(a) Find the price buyers pay, the price sellers receive and the new quantity. (b) Calculate the cost to the government and the changes in consumer and producer surplus. (c) Calculate the deadweight loss and explain where it comes from, using the cost and value of the last crate produced. (d) Explain why buyers gain more per crate than sellers.
Model answer and suggested Marlbridge rubric
(a) New supply: Qs = 6(P + 9) − 120 = 6P − 66. Then 150 − 3P = 6P − 66, so 216 = 9P and P = $24 (buyers). Sellers receive 24 + 9 = $33. Q = 150 − 72 = 78 thousand crates.
(b) Cost = 9 × 78 = $702 thousand. CS = ½ × 78 × (50 − 24) = $1,014 thousand, up $414 thousand. PS = ½ × 78 × (33 − 20) = $507 thousand, up $207 thousand.
(c) Buyers and sellers gain 414 + 207 = $621 thousand, but the subsidy costs $702 thousand. DWL = $81 thousand = ½ × 9 × (78 − 60). It comes from over-production: the last crate costs $33 to grow (the original supply curve at 78 thousand) but is worth only $24 to the buyer. Every crate from 60 to 78 thousand costs more than it is worth.
(d) Buyers pay $6 less and sellers get $3 more. Demand (elasticity 1.5 at the start) is less elastic than supply (3.0), so buyers capture the larger share of the subsidy, just as they bore the larger share of the tax in Question 4.
| Point | What earns it |
|---|---|
| 1 | Both prices and 78 thousand |
| 1 | Cost and both surplus changes |
| 1 | DWL of $81 thousand |
| 1 | DWL explained by units whose cost exceeds their value, using $33 and $24 |
| 1 | Larger buyer gain linked to less elastic demand |
How did you do?
- Q1, Q5 or Q6(a) wrong: re-read “Price ceilings” and “Price floors” in the study guide. Ceilings bind below equilibrium, floors above.
- Q2, Q4(b) or Q7(d) wrong: re-read “Who bears a tax? Elasticity decides”.
- Q4 or Q7 calculations wrong: re-read Worked example 2 and “Per-unit subsidies”. Use the price sellers actually keep or receive for producer surplus.
- Q3 wrong: re-read “Quantity controls”.
Then tick off the topic checklist.