AQA A-level Economics: Supply, elasticity, equilibrium and related markets (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions follow the AQA AS and A-level Economics specification (version 1.3, 29 June 2022) for the A-level, first taught from September 2015. They cover the determinants of supply, price elasticity of supply, equilibrium market prices and the interrelationship between markets, numbered 3.1.3 on the AQA website. All data are invented. Work through the study guide and the revision notes. The AQA A-level Economics hub, the printable checklist and the free 10-minute diagnostics are also useful.

Questions

1. A firm in a perfectly competitive market has marginal cost of £3, £5, £7, £9, £11 and £13 for units 1 to 6. (a) How many units does it supply at a price of £9, and at £12? [2] (b) Explain why its supply curve is its marginal cost curve, and why a higher price gives an incentive to expand. [2]

2. In Country C’s market for a good, Qd = 240 − 10P and Qs = 40 + 10P, where P is in £. (a) Calculate the equilibrium price and quantity. [2] (b) A subsidy of £2 per unit is paid to producers. Find the new supply equation and the new equilibrium. [2] (c) Calculate the percentage change in price. [1]

3. A small firm raises output from 400 to 448 units when price rises from £8 to £9.20. (a) Calculate price elasticity of supply. [2] (b) Interpret the value. [1] (c) Predict the change in quantity if price rises by 5%. [1]

4. Explain two factors that make the supply of fresh strawberries inelastic in the short run. [4]

5. A market has Qd = 420 − 15P and Qs = −60 + 25P. (a) Calculate the equilibrium price and quantity. [2] (b) State the excess at a price of £14. [2] (c) Explain how the market moves back to equilibrium. [3]

6. In a market for a vegetable, Qd = 320 − 10P and Qs = 20 + 20P. Poor weather reduces supply by 60 units at every price, while a health campaign raises demand by 60 units at every price. (a) Find the original and new equilibrium. [3] (b) Explain why the effect on quantity depends on the relative size of the shifts. [2]

7. Country D builds 6,000 homes a year using 9,000 bricks per home. Homebuilding then falls by 15%. (a) Calculate brick demand before and after the fall. [2] (b) Explain what is meant by derived demand and give one reason why the real fall in brick demand might differ from 15%. [3]

8. (a) Explain, using joint supply, how a rise in demand for beef affects the market for hides. [3] (b) Define composite demand and explain, using milk, how a rise in demand for one use affects another. [3]

9. (a) Explain two assumptions of the model of demand and supply. [4] (b) Assess one limitation of the model in the housing market. [2]

10. A drought reduces the wheat harvest in Country B. Analyse the effects on the markets for flour, bread, rice and farm labour, and evaluate how large the effects are likely to be. [10]

Answers

1. (a) At £9, 4 units [1]; at £12, 5 units [1]. (b) A price taker produces where price equals marginal cost, so each price maps to an output on the MC curve [1]. A higher price covers the cost of more units and raises profit per unit, so firms expand [1]. Examiner insight: State the rule (price equals MC or the last unit costs no more than the price) rather than just reading off the table.

2. (a) 240 − 10P = 40 + 10P gives P = £10 [1] and Q = 140 [1]. (b) Qs = 40 + 10(P + 2) = 60 + 10P [1]; 240 − 10P = 60 + 10P gives P = £9, Q = 150 [1]. (c) (9 − 10) ÷ 10 = −10% [1]. Examiner insight: Show the equation set-up each time; a slip in the subsidy substitution is easier to follow if the line is written out.

3. (a) % change in quantity = 48 ÷ 400 = 12% and in price = 1.20 ÷ 8 = 15% [1]. PES = 12 ÷ 15 = 0.8 [1]. (b) Inelastic: quantity changes proportionally less than price [1]. (c) 0.8 × 5 = 4% rise [1]. Examiner insight: Use the original values as the base and give a sentence of interpretation; a bare number does not show you know what it means.

4. Growing time [1]: plants take months, so output cannot respond to a higher price within the season [1]. Perishability [1]: fruit cannot be stored, so producers cannot release stock when price rises [1]. Examiner insight: Naming a factor earns little unless you link it to the product and to quantity not responding.

5. (a) 420 − 15P = −60 + 25P gives 480 = 40P, so P = £12 [1], Q = 240 [1]. (b) At £14, Qd = 210 and Qs = 290 [1]; excess supply of 80 [1]. (c) Unsold stock builds up and sellers compete by cutting price [1]. As price falls, quantity demanded extends and quantity supplied contracts [1]. This continues until both equal 240 at £12, where there is no tendency to change [1]. Examiner insight: Describe the adjustment as a movement along the curves, not a shift.

6. (a) Original: 320 − 10P = 20 + 20P gives P = £10, Q = 220 [1]. New: Qd = 380 − 10P and Qs = −40 + 20P [1]; 420 = 30P gives P = £14, Q = 240 [1]. (b) The two shifts push quantity in opposite directions, so the outcome depends on which is larger [1]. If supply had fallen by 120 (Qs = −100 + 20P), price would be £16 and quantity 220, unchanged; a larger fall would reduce quantity [1]. Examiner insight: Price rises either way, so say clearly which variable is determinate and which is not.

7. (a) Before: 6,000 × 9,000 = 54,000,000 [1]. After: 5,100 × 9,000 = 45,900,000 [1]. (b) Derived demand is demand for a good that arises from demand for another good it helps produce [1]. Builders may use stocks or switch to substitute materials, or bricks may be used in repairs and other projects [1], so brick demand may not move in exact proportion [1]. Examiner insight: A 15% fall is correct only under the fixed-proportions assumption; saying so shows understanding.

8. (a) Higher beef demand raises price, so farmers rear more cattle [1]. Hides are produced with beef, so supply of hides shifts right [1]. Price of hides falls and quantity rises [1]. (b) Composite demand is demand for a good with several different uses [1]. A rise in demand for milk for cheese raises its price and diverts supply from other uses [1], so less is available for yoghurt, whose costs rise and supply shifts left [1]. Examiner insight: Give a direction at every step; related-market answers lose credit when the chain stops halfway.

9. (a) Many buyers and sellers who are price takers [1], so no single party can set price [1]. Buyers and sellers are well informed and rational [1], so they respond to price signals correctly [1]. (b) Housing supply is slow to adjust because building takes time and planning rules apply [1], so price can stay away from equilibrium for long periods, unlike the model’s quick adjustment [1]. Examiner insight: For an assessment, name the market, state why the assumption fails there and say what that does to the prediction.

10. Supply of wheat shifts left, so price rises and quantity falls [1]. Wheat is an input into flour, so flour supply shifts left and its price rises [1]. Bread uses flour, so bread supply shifts left, price rises and quantity falls [1]. Rice is a substitute (competitive demand), so some buyers switch and demand for rice rises [1], raising its price [1]. Lower wheat output means lower derived demand for farm labour [1]. Evaluation: wheat supply is inelastic in the short run, so the price rise is large [1]. The effects depend on the price elasticity of demand for bread, and on stocks, imports and government action [1]. The size of each link depends on wheat’s share of the cost of flour and bread [1]. In the long run farmers can change crops and supply becomes more elastic, so the effects may be temporary [1]. Examiner insight: Strong answers keep each step to a shift, a direction and a new price, then judge size using elasticity and time.

Where marks are usually lost

• Reading outputs off a table without stating the price equals marginal cost rule.
• Calculating a percentage change from the new value.
• Giving a PES figure but no interpretation.
• Describing price adjustment as a shift of the curves.
• Answering a related-markets question with one step only.
• Writing “supply increased” when only the price changed, which is a movement along the curve.
• Treating “assumptions” as a list with no assessment of how far they hold.
• Leaving out units, the £ sign or the word “per unit” on tax and subsidy figures.

Next steps

• Review the revision notes and the study guide.
• Visit the AQA A-level Economics hub and the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA AS and A-level Economics specification (version 1.3, 29 June 2022), published by AQA, for first teaching from September 2015.