3

Demand and supply

Activity (p. 21)

Students own answers. Make sure students are using some of the determinants
of demand in their discussions. Allowing students the opportunity to justify their
argument helps to improve their overall judgement and evaluation.

Activity (p. 23)

Most shopping centres or malls will have more outlets aimed specifically at women
than men. This is due to the greater demand from female customers than male
shoppers. Studies in Europe and America have shown that the average spend of
women is greater than that of men, so profit-seeking firms will cater for those who
are willing and able to spend more money.

Activity (p. 25)

Students own answers, but these are likely to include Paris, London, Rome,
Barcelona, Dublin, Istanbul, Madrid and Amsterdam. The purpose of the activity is to
engage students understanding and application of demand theory.

Exam practice (p. 25)

1 There is a contraction in demand because the higher price causes less demand for
Apple smartphones.
2 There is a rightwards shift in the demand curve (for Apple smartphones) due to
the higher priced rival Samsung smartphones.
3 Assuming Apple smartphones are normal (luxury) goods, an increase in consumer
incomes should shift the demand curve for Apple smartphones to the right.
4 The demand curve for Samsung smartphones should increase, so the demand
curve for Apple smartphones should shift to the left as more consumers choose
to buy Samsung smartphones.
In each question, the diagram and explanation must be accurate for full marks.

Activity (p. 26)

Students own answers. The purpose of the activity is to engage students
understanding and application of supply theory.

Activity (p. 28)

The discussions are likely to include consideration of a significant leftward shift of the
supply curve for most goods and services in Japan, due to the devastation caused by
the tsunami. There will be a likely delay in the output of manufactured products, like
cars, even in towns not directly affected by the natural disaster.

Exam practice (p. 29)

1 a) There is an expansion in the supply curve because the subsidy (to customers)
increases the demand for educational computer games. Alternatively, accept
answers that show a shift in the supply curve to the right with an explanation
that the subsidy lowers the costs of production for the makers of educational
computer programmes thus lowering the price for consumers.
b) Costs of production increase, so the supply of educational computer games
shifts to the left.

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 3 Demand and supply

c) The tax increases costs of production, so again the supply of educational

computer games shifts to the left.
d) The technological advances (in the production of educational computer games)
shift the supply curve to the right. This lowers the market price and increases
the quantity traded.
In each question, the diagram and explanation must be accurate for full marks.
2 a) This would increase the cost of labour, thereby shifting the supply curve in the
goods market to the left (due to higher costs of production).
b) The drought reduces the supply of vegetables, thus shifting the supply curve to
the left. This leads to the increase in the price of vegetables in France.
c) The new technology at Tata Motors increases the productive capacity of the
company, thus shifting the supply curve to the right.
d) The government subsidies help to reduce the costs of production of hybrid
cars, thus shifting their supply curve to the right.
e) The new products being launched on the market increase the overall market
supply of tablet computers. Therefore, the market price will tend to fall as
more firms supply rival products on the market.
In each of the above cases, award up to 2 marks for an accurately drawn
diagram and up to 2 further marks for the accompanying explanation.

Activity (p. 30)

Students own answers. The purpose of this activity is to engage students
understanding and application of price determination (equilibrium price). There are a
large number of reasons for higher house prices over time, so it will be interesting to
see what students can come up with from their investigations.

Exam practice (p. 32)

1 a) Higher fuel taxes raise the costs of production, thus shifting the supply curve
to the left. This causes the price of fuel to rise and a contraction in the quantity
demanded.
b) The demand curve for Pepsi Cola shifts to the left as customers switch to buy
the relatively cheaper product, Coca-Cola.
c) The demand curve for sushi shifts to the right as more people demand the
product, given the health benefits portrayed by marketers. This causes both
the equilibrium price and quantity traded to increase.
d) Productivity gains shift the supply curve of Samsung digital cameras to the
right.
In each question, the diagram, including the correct shift in either the demand or
supply curve, and explanation must be accurate for full marks.
2 a) Demand refers to the willingness and ability to pay a certain price to obtain a
good (such as LEGO toys) or a service.
b) Possible reasons for the higher demand include:
l A wider customer base as previously mainly boys accounted for the sales of
all LEGO toys.
l The $40 million global marketing campaign of LEGO Friends proved to be
more effective than the company expected.

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 3 Demand and supply

l Accept any other reasonable answer that is explained, e.g. higher levels of
income leading to parents spending more money on toys such as LEGO
Friends.
Award 1 mark for correctly identifying a possible reason for the higher demand,
plus up to 2 further marks for the explanation using demand and supply theory.
3
10
S
8
Price of carrots
($ per kg)

D
2

O
10 20 30 40 50
Quantity of carrots per
month (000 kg)

a) The equilibrium price is $6 where demand and supply are both equal to
25000kg of carrots.
Award marks as follows (1 mark each):
l Demand curve that is accurately plotted and labelled
l Supply curve that is accurately plotted and labelled
l Correct label for x-axis, i.e. Quantity of carrots per month (000kg)
l Correct label for y-axis, i.e. Price of carrots ($ per kg)
l Clearly showing the equilibrium price at $6
l Clearly showing the equilibrium quantity traded at 25000kg

b) At $5 per kilo, the demand is 30000kg whilst the supply is only 20000kg.
Hence, the excess demand is 10000kg of carrots as can be seen on the graph.
c) At $8 per kilo, the demand is 15000kg whilst the supply is 35000kg. Hence,
the excess supply is 20000kg of carrots as can be seen on the graph.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 3