Cambridge O Level Economics: Causes and effects of price changes, and the market economic system (2281) – 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.

This set tests sections 2.6 and 2.9 of the Cambridge O Level Economics syllabus for examination in 2026. All names and figures are invented. Teaching is in the study guide and the revision notes. Other links: the Cambridge O Level Economics hub, the printable checklist and the free diagnostics.

Questions

1. State what is meant by a market economic system. [2]

2. For each event, state whether demand or supply shifts, and in which direction. (a) A flood destroys much of a country’s rice crop. [1] (b) A successful advertising campaign for a brand of sports shoes. [1] (c) The price of flour falls, and bakers use flour to make bread. [1] (d) The price of tea rises, and you are considering the market for coffee. [1]

3. The table shows the market for school notebooks in Country A, per month. Price is in dollars. A government reading campaign raises demand.

Price	Demand before	Demand after	Supply
2	150	210	30
3	120	180	60
4	90	150	90
5	60	120	120
6	30	90	150

(a) State the equilibrium price and quantity before the campaign. [2] (b) State the equilibrium price and quantity after the campaign. [2] (c) Calculate the percentage change in price. [1] (d) Calculate the change in total spending on notebooks. [2]

4. A poor harvest reduces the supply of cassava. Using a demand and supply diagram described in words, explain the effect on the price and sales of cassava. [5]

5. The table shows the market for mangoes in Country B, in tonnes per week. New farming methods raise supply.

Price	Demand	Supply before	Supply after
6	280	120	200
7	260	140	220
8	240	160	240
9	220	180	260
10	200	200	280
11	180	220	300

(a) State the new equilibrium price and quantity. [2] (b) Calculate the change in total revenue of mango farmers. [2] (c) Explain why revenue fell even though more mangoes were sold. [2]

6. The table shows the market for scarves in Town C. Price is in dollars.

Price	14	15	16	17	18	19	20
Demand	160	150	140	130	120	110	100
Supply	120	130	140	150	160	170	180

(a) In case X, demand rises by 30 and supply rises by 70 at every price. In case Y, demand rises by 90 and supply rises by 30 at every price. Find the new equilibrium price and quantity in each case. [4] (b) Explain why the effect on price cannot be known when both demand and supply increase, unless the size of each shift is given. [2]

7. Explain two advantages of the market economic system. [4]

8. Explain two disadvantages of the market economic system. [4]

9. In Country M (invented), land and factories are privately owned, prices are set by buyers and sellers, and the government enforces contracts but provides little else. (a) Identify two features that show Country M has a market economic system. [2] (b) Explain one reason why even Country M’s government might provide vaccinations free of charge. [3]

10. Demand for electric bicycles rises. Explain how the price mechanism moves resources towards making more of them. [4]

11. Discuss whether the market economic system is the best way to allocate a country’s resources. [8]

Answers

1. In a market economic system resources are allocated mainly by the interaction of demand and supply through prices [1], with private ownership of resources and decisions by firms and consumers and only a small role for the government [1]. [2] Examiner insight: A definition earns credit for the mechanism (prices, demand and supply). “A system with no government” is the common slip and does not describe how resources are allocated.

2. (a) Supply shifts left (decreases). [1] (b) Demand shifts right (increases). [1] (c) Supply of bread shifts right (increases), because costs fall. [1] (d) Demand for coffee shifts right (increases), because tea and coffee are substitutes. [1] Examiner insight: Give both the curve and the direction. “It increases” without saying which curve leaves the point open.

3. (a) Demand equals supply at price 4 [1] and quantity 90 [1]. [2] (b) After the campaign, demand equals supply at price 5 [1] and quantity 120 [1]. [2] (c) (5 − 4) / 4 × 100 = 25% rise [1]. [1] (d) Before: 4 × 90 = 360 [1]. After: 5 × 120 = 600. Spending rises by 240 [1]. [2] Examiner insight: Show the calculation and divide by the original price. A correct figure that is not tied to the starting price or quantity gives the reader little to credit.

4. The supply curve shifts to the left because the poor harvest cuts output at every price [1]. The demand curve does not move [1]. At the old price quantity demanded now exceeds quantity supplied, a shortage [1]. Price rises, which reduces quantity demanded (a contraction along the demand curve) [1]. The new equilibrium has a higher price and a lower quantity sold [1]. [5] Examiner insight: A strong answer names both axes and both equilibria and states what happens to price and to sales. A diagram description that only says “supply falls” is incomplete.

5. (a) New supply equals demand at price 8 [1] and quantity 240 tonnes [1]. [2] (b) Before: 10 × 200 = 2,000 [1]. After: 8 × 240 = 1,920, a fall of 80 [1]. [2] (c) Price fell by 20% (from 10 to 8) while sales rose by 20% (from 200 to 240) [1]. Each tonne sells for less, and the rise in sales is not large enough to make up for the fall in price [1]. [2] Examiner insight: “Revenue” questions reward comparing the size of the price change with the size of the sales change. Saying only “price fell” does not explain why the total fell.

6. (a) Case X: new demand is 190 and new supply is 190 at price 14 [1], so price 14 and quantity 190 [1]. Case Y: new demand is 200 and new supply is 200 at price 19 [1], so price 19 and quantity 200 [1]. [4] (b) Both increases raise the quantity sold [1]. A rise in demand pushes price up and a rise in supply pushes it down, so the result depends on which shift is larger (here price fell in case X and rose in case Y) [1]. [2] Examiner insight: Use both cases from part (a) as evidence in part (b). The explanation is stronger when it says which effect wins and why.

7. Advantage one: consumer choice. Spending decides what is produced [1], so firms make what people want to buy [1]. Advantage two: efficiency. Competition and the profit motive push firms to cut costs and improve quality [1], which can lower prices and spur new ideas [1]. (Other valid advantages: fast response to change, low cost of planning.) [4] Examiner insight: Each advantage needs a development as well as a name. A list of labels such as “choice, efficiency” tends to earn less than two explained points.

8. Disadvantage one: inequality. Those with low incomes cannot buy goods even if they need them [1], so wealth and living standards can differ widely [1]. Disadvantage two: missing or harmful goods. Markets may under-supply public and merit goods, or over-produce demerit goods with harmful side effects [1], because private profit ignores wider costs and benefits [1]. (Other valid points: monopoly power, unemployment.) [4] Examiner insight: Link the disadvantage to how the system works, not just to a bad outcome. “People suffer” is a result; “profit ignores wider costs” is the cause.

9. (a) Private ownership of land and factories [1]. Prices set by buyers and sellers (or a limited government role) [1]. [2] (b) Vaccinations are a merit good [1]. If people pay, some will not buy them because they undervalue the benefit [1]. Free provision raises use, and the whole community gains through fewer infections [1]. [3] Examiner insight: Give the link between the good and the reason. “The government cares about health” does not use the economics the question asks for.

10. Higher demand creates a shortage at the old price, so price rises [1]. A higher price raises profit for firms making electric bicycles [1]. Firms respond by producing more, and new firms enter [1]. Land, labour and capital move from products with lower profit into this one [1]. [4] Examiner insight: Show the chain from demand to price to profit to resources. Stopping at “price rises” misses the point of the question, which is about how resources move.

11. Definition: in a market system, price and profit allocate resources [1]. For: consumer choice because spending guides output [1]; efficiency because competition drives down costs [1]; fast adjustment as prices signal changes in demand [1]. Against: inequality because those without income get little [1]; under-supply of public and merit goods and over-supply of demerit goods [1]; monopoly power can restrict output [1]. Evaluation: the best system depends on the product and on how competitive the market is, and most countries (for example the invented Country Y, which uses markets but taxes to fund schools) use a mix of market and government [1]. [8] Examiner insight: A balanced answer needs both sides and a reasoned conclusion. A final sentence that simply repeats “it has advantages and disadvantages” does not make a judgement.

Where marks are usually lost

• Shifting the wrong curve, or shifting both curves when only one condition changed.
• Not stating what happens to both price and quantity.
• Leaving out the shortage or surplus that drives the price to its new level.
• Using the new figure as the base for a percentage change instead of the starting figure.
• Confusing an increase in demand (a shift) with an extension of demand (a movement).
• Naming advantages or disadvantages without explaining how each one works.
• Describing the market system as having no government at all.
• Ending an evaluation with no judgement or no reason for it.

Next steps

• Revise from the revision notes.
• Re-read the study guide.
• Visit the Cambridge O Level Economics hub and the printable checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Aligned to the Cambridge O Level Economics 2281 syllabus for examination in 2026, sections 2.6 and 2.9, published by Cambridge International.