S4 Economics Paper: Demand And Supply, Elasticity, Costs, Market Structure, National Income And Public Finance

S4 Economics Paper: Demand and Supply, Elasticity, Costs, Market Structure, National Income and Public Finance

2026-11-13

S4 Economics – demand, supply and public finance

S4 Economics practice paper: 6 questions, 24 parts, 100 marks, 60 minutes on demand and supply, elasticity, costs, market structure, national income and public finance.

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Paper details　S4 Economics practice paper with 6 questions and 24 parts on demand and supply, elasticity, costs, market structure, national income and public finance, with full marking points.

Section A: Demand, Supply and Market Equilibrium (16 marks)

Answer all parts and show your working with units.

#	Question	Answer and marking notes
1	The market demand for a good is Qd = 240 – 4P and market supply is Qs = 6P – 60, where quantity is in units and price in dollars. Find the equilibrium price and quantity.	Answer: set Qd = Qs, 240 – 4P = 6P – 60, so 300 = 10P and P = 30 dollars; then Q = 120 units. (Marking: equation 2, price and quantity 1 each)
2	If the government sets a price floor of 40 dollars, find the quantity demanded, the quantity supplied and the excess supply.	Answer: at P = 40, Qd = 240 – 160 = 80 units and Qs = 240 – 60 = 180 units, so excess supply = 180 – 80 = 100 units. (Marking: two quantities 1 each, excess supply 2)
3	Demand rises to Qd = 300 – 4P while supply is unchanged. Find the new equilibrium price and quantity and state the direction of the price change.	Answer: 300 – 4P = 6P – 60 gives 360 = 10P, so P = 36 dollars and Q = 156 units; price rises from 30 to 36 dollars and quantity from 120 to 156 units. (Marking: new equilibrium 3, direction 1)
4	Using the original demand and supply, find the consumer surplus at equilibrium (the price intercept of the demand curve is 60 dollars).	Answer: consumer surplus = 1/2 x (60 – 30) x 120 = 1,800 dollars. (Marking: formula 2, value 2)

Section B: Price, Income and Cross Elasticity (18 marks)

Show the percentage changes and classify the good in each case.

#	Question	Answer and marking notes
5	The price of a good rises from 20 to 22 dollars and quantity demanded falls from 500 to 440 units. Find the price elasticity (signed value) and state whether demand is elastic or inelastic.	Answer: price change +10 percent and quantity change -12 percent, so elasticity = -12 / 10 = -1.2; the absolute value exceeds 1, so demand is elastic. (Marking: percentages 2, value and judgement 2)
6	Using the previous question, find total revenue before and after the price rise and explain the link between the revenue change and elasticity.	Answer: revenue before = 20 x 500 = 10,000 dollars and after = 22 x 440 = 9,680 dollars, a fall of 320 dollars; with elastic demand a price rise cuts revenue because the quantity fall is proportionally larger. (Marking: two revenues 2, explanation 2)
7	A household income rises by 8 percent and its purchases of a good rise by 20 percent. Find the income elasticity and classify the good as normal, inferior or luxury.	Answer: income elasticity = 20 / 8 = 2.5; it is positive and above 1, so the good is a luxury within normal goods. (Marking: value 3, classification 2)
8	The price of a substitute rises by 10 percent and purchases of a good rise by 15 percent. Find the cross elasticity and state the relationship between the two goods.	Answer: cross elasticity = 15 / 10 = 1.5; the positive sign shows the two goods are substitutes. (Marking: value 3, relationship 2)

Section C: Production Costs and Break-even (16 marks)

Total fixed cost is 2,400 dollars, average variable cost is 15 dollars per unit and the selling price is constant.

#	Question	Answer and marking notes
9	At an output of 200 units, find total cost and average cost.	Answer: total cost = 2,400 + 15 x 200 = 5,400 dollars and average cost = 5,400 / 200 = 27 dollars. (Marking: total cost 2, average cost 2)
10	At an output of 300 units, find total cost and average cost and explain why average cost falls.	Answer: total cost = 2,400 + 4,500 = 6,900 dollars and average cost = 6,900 / 300 = 23 dollars; the fixed cost is spread over more units, so average cost falls from 27 to 23 dollars. (Marking: values 2, explanation 2)
11	If the price is 24 dollars per unit, find the break-even output and explain why the answer must be rounded up to a whole unit.	Answer: 24Q = 2,400 + 15Q gives 9Q = 2,400 and Q = 266.67 units; output must be a whole number not below this value, so at least 267 units are needed to avoid a loss. (Marking: equation 2, answer and reason 2)
12	At a price of 24 dollars and an output of 400 units, find total revenue, total cost and profit.	Answer: revenue = 24 x 400 = 9,600 dollars, total cost = 2,400 + 6,000 = 8,400 dollars and profit = 9,600 – 8,400 = 1,200 dollars. (Marking: revenue and cost 1 each, profit 2)

Section D: Market Structure and Concentration (16 marks)

Show the relationship between marginal revenue and marginal cost.

#	Question	Answer and marking notes
13	A monopolist faces demand P = 100 – 2Q and a constant marginal cost of 20 dollars. Find the profit-maximising output and price.	Answer: marginal revenue MR = 100 – 4Q; setting MR = MC gives 100 – 4Q = 20 and Q = 20 units, so P = 100 – 40 = 60 dollars. (Marking: MR 2, output and price 1 each)
14	Using the previous question, find the monopolist profit, assuming no fixed cost.	Answer: profit = (60 – 20) x 20 = 800 dollars. (Marking: unit margin 2, total profit 2)
15	In the long-run equilibrium of a perfectly competitive market, the minimum average cost of a firm is 25 dollars. Find the long-run equilibrium price and the economic profit of a firm.	Answer: the long-run price equals minimum average cost, 25 dollars; firms earn only normal profit, so economic profit is zero. (Marking: price 2, profit 2)
16	The market shares of the four firms in an industry are 40, 30, 20 and 10 percent. Find the Herfindahl index (HHI) and judge the degree of concentration.	Answer: HHI = 40 squared + 30 squared + 20 squared + 10 squared = 1,600 + 900 + 400 + 100 = 3,000; a value above 2,500 is usually highly concentrated, so the industry is highly concentrated. (Marking: four squares 2, total and judgement 2)

Section E: National Income and the Multiplier (18 marks)

Amounts are in hundred million dollars and population in persons; show your working.

#	Question	Answer and marking notes
17	An economy has private consumption 800, investment 200, government spending 250, exports 400 and imports 350, all in hundred million dollars. Find GDP.	Answer: GDP = C + I + G + X – M = 800 + 200 + 250 + 400 – 350 = 1,300 hundred million dollars. (Marking: formula 2, value 2)
18	If nominal GDP is 1,560 hundred million dollars and the price index is 120, find real GDP.	Answer: real GDP = 1,560 x 100 / 120 = 1,300 hundred million dollars. (Marking: formula 2, value 2)
19	The marginal propensity to consume is 0.75. Find the multiplier and, if autonomous investment rises by 50 hundred million dollars, the total change in national income.	Answer: the multiplier = 1 / (1 – 0.75) = 4, so national income rises by 50 x 4 = 200 hundred million dollars. (Marking: multiplier 3, change 2)
20	If real GDP is 1,300 hundred million dollars and the population is 6.5 million, find GDP per capita.	Answer: GDP per capita = 130,000,000,000 dollars / 6,500,000 persons = 20,000 dollars. (Marking: conversion 3, value 2)

Section F: Public Finance and Policy Tools (16 marks)

For tax and subsidy items, show each band or per-unit amount.

#	Question	Answer and marking notes
21	A person has taxable income of 200,000 dollars. The bands are 2 percent on the first 50,000, 7 percent on the next 50,000, 12 percent on the next 50,000 and 17 percent on the remainder. Find the tax payable and the average tax rate.	Answer: tax = 50,000 x 2 + 50,000 x 7 + 50,000 x 12 + 50,000 x 17 percent = 1,000 + 3,500 + 6,000 + 8,500 = 19,000 dollars, so the average rate is 19,000 / 200,000 = 9.5 percent. (Marking: four bands 2, tax and rate 1 each)
22	In a year government revenue is 900 and expenditure 980, in hundred million dollars. Find the budget balance and state whether it is a surplus or a deficit.	Answer: balance = 900 – 980 = -80 hundred million dollars, a deficit of 80. (Marking: value 2, judgement 2)
23	The government imposes a specific tax of 6 dollars per unit and the quantity traded after the tax is 80 units. Find the tax revenue.	Answer: tax revenue = 6 x 80 = 480 dollars. (Marking: working 2, value 2)
24	The government instead gives a subsidy of 4 dollars per unit and the quantity traded becomes 150 units. Find the subsidy payment and state whether the price paid by consumers rises or falls compared with no subsidy.	Answer: subsidy payment = 4 x 150 = 600 dollars; the subsidy raises supply, so the price paid by consumers falls. (Marking: payment 2, direction 2)

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