DSE Economics Practice Paper: Demand, Supply And Elasticity (12 Questions, 50 Marks, 75 Minutes)

DSE Economics Practice Paper: Demand, Supply and Elasticity (12 Questions, 50 Marks, 75 Minutes)

2026-11-02

DSE Economics: Demand, Supply and Elasticity

DSE Economics: 12 questions, 50 marks, 75 minutes on demand, supply, equilibrium, elasticity, price controls, tax incidence and consumer surplus.

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Paper details　Level: S6 | Subject: Economics | Time: 75 minutes | Marks: 50 | Questions: 12

Section A (Q1-Q6): Demand, Supply and Elasticity

Answer all questions. Show your working and units.

#	Question	Answer and marking notes
1	The price of a product falls from $10 to $8 and quantity demanded rises from 100 to 140 units. (a) Calculate the price elasticity of demand using the arc formula. (b) State whether demand is elastic, unit elastic or inelastic, and explain the effect of the price cut on total revenue.	(a) % change in quantity = (140 – 100) / 120 x 100% = 33.3%; % change in price = (8 – 10) / 9 x 100% = -22.2%. PED = 33.3% / (-22.2%) = -1.5. (2 marks) (b) The absolute value 1.5 exceeds 1, so demand is elastic. (1 mark) Total revenue rises from $1,000 to $1,120 because the percentage rise in quantity outweighs the percentage fall in price. (1 mark)
2	State two factors that would shift the supply curve of an electronic product to the right, and give a concrete example for each factor explaining how it works.	Any two factors, 2 marks each (factor 1 mark + mechanism example 1 mark). (1) Technological progress: a new production line raises hourly output from 100 to 130 units, so more is supplied at every price and supply shifts right. (2) Lower input prices: cheaper chips reduce marginal cost, so firms supply more at each price. Also acceptable: more producers, a production subsidy, an expectation of lower future prices, a fall in the price of a substitute in production.
3	In a market, demand is Qd = 200 – 6P and supply is Qs = 20 + 3P (Q is quantity, P is price). (a) Find the equilibrium price and quantity. (b) If the government sets a price ceiling of $15, calculate the excess demand and state whether the ceiling is binding.	(a) Set Qd = Qs: 200 – 6P = 20 + 3P, so 180 = 9P, P = $20 and Q = 80 units. (2 marks) (b) At P = $15, Qd = 110 and Qs = 65, so excess demand is 45 units. (1 mark) The ceiling is below equilibrium, so it is binding and creates a shortage that may lead to queues, rationing or a black market. (1 mark)
4	The price of a product is cut from $50 to $40 and sales rise from 200 to 260 units. (a) Calculate the price elasticity of demand using the arc formula. (b) Use the change in total revenue to identify the elasticity over this range and explain the link between the two.	(a) % change in quantity = 60 / 230 x 100% = 26.1%; % change in price = -10 / 45 x 100% = -22.2%. PED = 26.1% / (-22.2%) = -1.17. (2 marks) (b) Total revenue rises from $10,000 to $10,400. (1 mark) Revenue rises when price falls only if demand is elastic, and here the 30% rise in sales exceeds the 20% price cut. (1 mark)
5	A consumer’s monthly income rises from $20,000 to $22,000 and her demand for a brand of instant noodles falls from 500 to 450 packs. (a) Calculate the income elasticity of demand. (b) State whether the good is inferior, a necessity or a luxury, and justify your answer.	(a) % change in quantity = -50 / 475 x 100% = -10.5%; % change in income = 2,000 / 21,000 x 100% = 9.5%. YED = -10.5% / 9.5% = -1.11. (2 marks) (b) YED is negative, so the good is inferior: demand falls as income rises. (1 mark) The consumer switches to better quality food after the pay rise. (1 mark)
6	The price of good A rises by 8% and the quantity demanded of good B rises by 12%. (a) Calculate the cross price elasticity of demand of B with respect to the price of A. (b) State the relationship between A and B (substitutes, complements or unrelated) and give a real-life example.	(a) XED = 12% / 8% = +1.5. (2 marks) (b) XED is positive, so A and B are substitutes. (1 mark) Example: Coke and Pepsi, where a rise in the price of one raises demand for the other. (1 mark)

Section B (Q7-Q9): Price Controls and Per-unit Tax

Answer all questions using the demand and supply model.

#	Question	Answer and marking notes
7	Demand is Qd = 160 – 2P and supply is Qs = -20 + 4P. To protect producers the government sets a minimum price of $36. (a) Find the equilibrium price and quantity without the minimum price. (b) Calculate the surplus at the minimum price and explain how the market adjusts.	(a) 160 – 2P = -20 + 4P, so 180 = 6P, P = $30 and Q = 100 units. (2 marks) (b) At P = $36, Qd = 88 and Qs = 124, so the surplus is 36 units. (1 mark) The floor is above equilibrium, so it is binding: unsold stock accumulates and firms may cut informal prices or compete on non-price terms. (1 mark)
8	Demand is Qd = 60 – 2P and supply is Qs = 10 + 3P. The government imposes a per-unit tax of $5 on producers. (a) Find the equilibrium price and quantity before the tax. (b) Find the price paid by consumers, the quantity traded, and how the tax burden is shared between consumers and producers.	(a) 60 – 2P = 10 + 3P, so 50 = 5P, P = $10 and Q = 40 units. (2 marks) (b) After the tax supply becomes Qs = 3P – 5, so 65 = 5P, P = $13 and Q = 34 units. Consumers pay $3 more per unit; producers receive $8 instead of $10, losing $2; the two shares add up to the $5 tax. (2 marks)
9	A city imposes a rent ceiling on residential flats. (a) Using demand and supply, explain the short-run change in the number of rental units available. (b) Explain why the shortage is usually more severe in the long run than in the short run.	(a) Supply is inelastic in the short run, so a ceiling below equilibrium cuts the number of units offered only slightly while demand rises, creating excess demand and non-price rationing such as queues and lotteries. (2 marks) (b) In the long run supply is more elastic: landlords convert, change use or stop maintaining flats, so supply falls further, while more households move in because of the controlled rent, widening the shortage. (2 marks)

Section C (Q10-Q12): Applications and Welfare Analysis

Answer all questions and explain your reasoning.

#	Question	Answer and marking notes
10	A firm faces a price elasticity of demand of -2.5 and wants to raise total revenue by 10%. (a) Using the approximate total revenue formula, work out the required percentage change in price. (b) Explain why a price cut raises total revenue when demand is elastic.	(a) % change in revenue is roughly % change in price plus % change in quantity = x – 2.5x = -1.5x. Setting -1.5x = 10% gives x = -6.7%, so price should be cut by about 6.7%. (3 marks) (b) With elastic demand a 6.7% price cut raises quantity by about 16.8%, so the revenue gained on extra units exceeds the revenue lost on the lower price. (2 marks)
11	Demand for a product rises by 20% within a year. Its supply elasticity is 0.2 in the short run and 1.0 in the long run. (a) Use the elasticity relationship to estimate the short-run and long-run rise in price. (b) Explain why the same demand shock has a much larger price effect in the short run.	(a) Short-run price rise is about 20% / 0.2 = 100%; long-run rise is about 20% / 1.0 = 20%. (3 marks) (b) Firms cannot expand capacity quickly in the short run, so inelastic supply forces almost the whole demand increase into price; in the long run new plant and new entrants raise supply elasticity and the price rise shrinks. (2 marks)
12	Demand in a market is Qd = 100 – P and the market price is $40. (a) Calculate consumer surplus at that price. (b) If the price falls to $30, calculate the increase in consumer surplus.	(a) At P = $40, Qd = 60 units and consumer surplus is 0.5 x (100 – 40) x 60 = $1,800. (2 marks) (b) At P = $30, Qd = 70 units and consumer surplus is 0.5 x (100 – 30) x 70 = $2,450, an increase of $650. (2 marks)

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