Form 4 Economics Practice Paper: Demand, Supply, Elasticity And Market Intervention (12 Questions, 100 Marks, 75 Minutes)

Form 4 Economics Practice Paper: Demand, Supply, Elasticity and Market Intervention (12 Questions, 100 Marks, 75 Minutes)

2026-11-05

Form 4 Economics – 12 questions – 100 marks – 75 minutes

Form 4 Economics paper: 12 questions, 100 marks, 75 minutes on demand and supply, equilibrium, surpluses, elasticity, unit tax, subsidy and quota.

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Paper details　Form 4 Economics practice paper with 12 structured questions on demand and supply, equilibrium, consumer and producer surplus, price elasticity, unit tax, subsidy, quota and deadweight loss.

Section A: Demand, Supply and Equilibrium (Q1-Q4, 34 marks)

Answer all questions; show the formula, substitution and unit for every calculation.

#	Question	Answer and marking notes
1	1. In a market the demand curve is Qd = 120 – 2P and the supply curve is Qs = 2P – 20, with price in dollars. (a) Find the equilibrium price and quantity. (3 marks) (b) Find the consumer surplus. (3 marks) (c) Find the producer surplus and the total surplus. (2 marks)	Answer: (a) Set 120 – 2P = 2P – 20, so 4P = 140: equilibrium price $35, equilibrium quantity 50 units. (b) Consumer surplus = 0.5 x (60 – 35) x 50 = $625. (c) Producer surplus = 0.5 x (35 – 10) x 50 = $625; total surplus = $1250.
2	2. Referring to question 1, the government sets a price ceiling of $30. (a) Find the quantity demanded and the quantity supplied. (3 marks) (b) Find the size of the shortage. (2 marks) (c) Explain why some consumers are worse off and state two non-price rationing methods. (4 marks)	Answer: (a) Quantity demanded = 120 – 2 x 30 = 60 units; quantity supplied = 2 x 30 – 20 = 40 units. (b) Shortage = 60 – 40 = 20 units. (c) Only the 40 units actually bought are obtained at the ceiling price; the remaining demand is unsatisfied, sellers may ration by queuing, ballots or allocation, and resale at a higher price can make some consumers pay more than before.
3	3. Referring to question 1, the price rises from $20 to $25. (a) Calculate the price elasticity of demand using the midpoint formula. (4 marks) (b) Find total revenue before and after the price rise. (2 marks) (c) State the effect of the price rise on total revenue and explain. (2 marks)	Answer: (a) At P = 20, Qd = 80; at P = 25, Qd = 70. By the midpoint formula the quantity change is (70 – 80) / 75 = -13.33% and the price change is 5 / 22.50 = 22.22%, so the price elasticity of demand is -0.60. (b) Total revenue rises from $1600 to $1750. (c) Demand is inelastic (absolute value below 1), so the price rise adds $150 of total revenue and a higher price is better.
4	4. The government imposes a unit tax of $6 per unit on sellers. (a) Find the new equilibrium price and quantity. (3 marks) (b) Find the price actually received by sellers per unit. (2 marks) (c) Find the tax revenue, the share of the tax borne by buyers and sellers, and the deadweight loss. (4 marks)	Answer: (a) The new supply curve is Qs = 2(P – 6) – 20 = 2P – 32; setting 120 – 2P = 2P – 32 gives P = $38 and Q = 44 units. (b) Sellers receive 38 – 6 = $32 per unit. (c) Tax revenue = 6 x 44 = $264; buyers bear (38 – 35) / 6 = 50% and sellers bear (35 – 32) / 6 = 50%; deadweight loss = 0.5 x 6 x (50 – 44) = $18.

Section B: Elasticity (Q5-Q8, 33 marks)

Data: prices are in dollars, use the formula named in each question, and total surplus equals consumer surplus plus producer surplus.

#	Question	Answer and marking notes
5	5. A person monthly income rises from $20 000 to $24 000 and the quantity demanded of a good rises from 50 units to 56 units. (a) Calculate the income elasticity using the initial-value formula. (4 marks) (b) Classify the good. (2 marks) (c) Explain how a firm could use this result in pricing and promotion. (2 marks)	Answer: (a) Income rises by 20% and quantity demanded by 12%, so the income elasticity is 12% / 20% = 0.60. (b) The elasticity is positive and below 1, so the good is a normal necessity. (c) Demand is insensitive to income, so a firm should build repeat custom and brand loyalty and may add a premium version for higher-income buyers.
6	6. The price of good Y rises from $40 to $44 and the quantity demanded of good X falls from 200 units to 180 units. (a) Calculate the cross elasticity using the initial-value formula. (4 marks) (b) State the relationship between X and Y. (2 marks) (c) Give one example of such a pair and explain the implication for firms. (3 marks)	Answer: (a) The price of Y rises by 10% and the quantity of X falls by 10%, so the cross elasticity is -10% / 10% = -1. (b) A negative cross elasticity means X and Y are complements. (c) Printers and ink cartridges: a dearer cartridge reduces printer demand, so the firm should price the machine low, keep margins on consumables and use bundle offers.
7	7. The price of a good rises from $10 to $12 and the quantity supplied rises from 100 units to 140 units. (a) Calculate the price elasticity of supply using the initial-value formula. (4 marks) (b) Interpret the result and state two factors that make supply more elastic. (2 marks) (c) If a unit tax is imposed, explain how the burden is shared between buyers and sellers. (2 marks)	Answer: (a) Price rises by 20% and quantity supplied by 40%, so the price elasticity of supply is 2. (b) A value above 1 means supply is elastic: a small price rise brings a large output response, which happens when the production period is short and factors are easily switched. (c) With elastic supply and inelastic demand the burden falls mainly on buyers, so sellers can pass most of the unit tax forward.
8	8. The government gives sellers a subsidy of $4 per unit. (a) Find the equilibrium price and quantity after the subsidy. (3 marks) (b) Find the amount actually received by sellers per unit. (2 marks) (c) Find the total subsidy payment and explain whether the whole benefit goes to consumers. (3 marks)	Answer: (a) The new supply curve is Qs = 2(P + 4) – 20 = 2P – 12; setting 120 – 2P = 2P – 12 gives P = $33 and Q = 54 units. (b) Sellers receive 33 + 4 = $37 per unit. (c) Total subsidy payment = 4 x 54 = $216; buyers save only $2 per unit (35 to 33) and sellers keep the other $2, so the benefit is shared.

Section C: Market Intervention and Efficiency (Q9-Q12, 33 marks)

Give numerical answers to two decimal places and support every explanation with the calculated figures.

#	Question	Answer and marking notes
9	9. The government sets a quota so that total market supply is capped at 40 units. (a) Find the market price under the quota. (3 marks) (b) Find the quantity actually traded. (2 marks) (c) Identify two groups of gainers and two groups of losers and explain. (4 marks)	Answer: (a) With 40 units traded, 40 = 120 – 2P gives P = $40. (b) The quantity actually traded is 40 units. (c) Gainers: the producers holding quota, who sell at $40 instead of $35, and middlemen who hold and resell quota rights; losers: consumers who cannot buy at all and producers excluded by the quota, so total surplus falls.
10	10. The absolute value of the price elasticity of demand for a good is 1.5 and a firm cuts its price by 10%. (a) Find the percentage change in quantity demanded. (2 marks) (b) Use an index approach to find the percentage change in total revenue. (4 marks) (c) Should the firm raise or cut its price to increase total revenue? Explain. (2 marks)	Answer: (a) The quantity demanded rises by 1.5 x 10% = 15%. (b) New total revenue = 0.90P x 1.15Q = 1.035PQ, a rise of 3.5%. (c) With elastic demand the quantity gain outweighs the price cut, so total revenue rises: the firm should cut the price.
11	11. Referring to question 1, production of the good creates a marginal external cost of $8 per unit. (a) Find the free-market equilibrium quantity. (2 marks) (b) Adding the external cost to the supply curve, find the socially optimal price and quantity. (4 marks) (c) Find the deadweight loss of the free-market output relative to the social optimum. (2 marks)	Answer: (a) The free-market equilibrium quantity is 50 units. (b) The new supply curve is Qs = 2(P – 8) – 20 = 2P – 36; setting 120 – 2P = 2P – 36 gives P = $39 and Q = 42 units. (c) Deadweight loss = 0.5 x 8 x (50 – 42) = $32.
12	12. Referring to the unit tax in question 4. (a) Find the change in consumer surplus. (3 marks) (b) Find the change in producer surplus. (3 marks) (c) Add the surpluses and the tax revenue to verify that the deadweight loss is $18. (2 marks)	Answer: (a) Consumer surplus falls from $625 to 0.5 x (60 – 38) x 44 = $484, a fall of $141. (b) Producer surplus falls from $625 to 0.5 x (32 – 10) x 44 = $484, a fall of $141. (c) 484 + 484 + 264 = $1232, which is $18 below the original total surplus of $1250, matching the deadweight loss in question 4.

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