S4 Economics 1

Name:______________________________________________________________Date:________________________

1. The following table shows the market for candles in Sorel.

Price Quantity Demanded Quantity Supplied New Quantity

Demanded (question
1 d) )
2 70 10
4 60 20
6 50 30
8 40 40
10 30 50
12 20 60
14 10 70

(a) Plot the demand and supply curves and label them appropriate with D1 and S1. Mark equilibrium E1 on your
diagram. [5]

(b) What are the values of equilibrium price and quantity? [2]

(c) If the price of candles were $6, would there be a surplus or a shortage in this market? Explain. [3]

(d) Suppose that demand were to increase by 10. Draw and label the new demand curve D2. What are the new
values of equilibrium? Mark the new equilibrium E2 on the graph. [4]
 S4 Economics 2

2. The equilibrium price of some newspapers rose in both India and the United Kingdom in 2011. However, demand for
newspapers rose in India and fell in the United Kingdom.

(a) What is the difference between equilibrium price and disequilibrium price? [4]

(b) Using a demand and supply diagram, analyse the effect of advertising campaign of a newspaper firm. [3]

(c) Explain three situations which would cause a fall in demand of a newspaper. [6]

3. A government decides to encourage the use of public transport by the provision of a subsidy.

Using a demand and supply diagram, analyse the effect of a subsidy on the equilibrium price and the equilibrium
quantity in such a market. [4]
 S4 Economics 3

4. P
a) The graph to the left shows a person’s demand
for movies. Calculate the price elasticity of
demand when the price changes from $7 to $9.
Is demand elastic, inelastic, or unit elastic?
9 Why? [5]

Q
54 63
9

(b) Explain what factors influence the price elasticity of demand for movies. [4]
 S4 Economics 4

Each quote below describes consumer demand as it is related to the price of a commodity. Decide if the quote indicates
that the commodity elastic or inelastic. Explain your conviction in sentences.

a. Coffee In the article "Coffee Cravers Ignoring Bean-Price Surge for Caffeine Fix" on Bloomberg.com [1], Doreen
Cappelli is quoted to say, “I don’t drink wine and alcohol,” Cappelli, 52, said after buying the $3.25 drink at Blue Bottle
Coffee at San Francisco’s Ferry Building, in the shadow of the Bay Bridge. “Coffee is one of my pleasures in life. I would
pay double.” Does Doreen's behavior indicate that coffee is an inelastic commodity, or an elastic commodity at that
price? [2]

b. Jewelry This quote is from the article "Americans Snap Up Gold Jewelry as Metal's Price Sinks," in MoneyNews.com
[2]: "I always look for the price of gold in the news and pay attention to discounts and deals," John Mora Gonzalez, a 31-
year-old mechanic in New York, said after purchasing a necklace for his wife for Christmas. Mora had spotted J.C. Penney
Co.'s 20-percent discount on fine jewelry, and paid $40 for a 10-karat gold necklace." Does John's behavior indicate that
gold jewelry is an inelastic commodity, or an elastic commodity at the current prices? [2]

c. Music This quote by Phil Leigh, senior analyst for Inside Digital Media is from the article, "Music download prices
rising?" from CNN Money [3]: "If the labels really want to fight piracy, it defies logic to increase prices and create more
of a disincentive for the consumer to use legitimate providers. If they want to encourage the public to use legitimate
online pricing, raising prices is about the last thing they should think of doing." Does Phil consider music an inelastic or
an elastic commodity at current prices? [2]