S5 Economics Practice Paper: Demand, Supply And Elasticity (12 Questions, 100 Marks)

S5 Economics Practice Paper: Demand, Supply and Elasticity (12 questions, 100 marks)

2026-11-08

S5 Economics: Demand, Supply and Elasticity

S5 Economics: equilibrium, elasticity (price, income, cross, supply), price ceiling and floor, tax and deadweight loss. 12 questions, 100 marks, 75 minutes, answers included.

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Section A: Demand, Supply and Market Equilibrium (4 questions, 33 marks)

Demand and supply: state Qd = Qs before solving; always give units for price and quantity.

#	Question	Answer and marking notes
1	The demand function for a good is Qd = 120 – 4P and price rises from $10 to $15. Find (a) quantity demanded at each price; (b) the price elasticity of demand using the initial value as the base, and state whether demand is elastic or inelastic.	(a) At P = 10, Qd = 120 – 40 = 80 units; at P = 15, Qd = 120 – 60 = 60 units. (b) Change in quantity = (60 – 80) / 80 x 100 = -25.0%; change in price = (15 – 10) / 10 x 100 = 50.0%; PED = -25.0 / 50.0 = -0.5, whose absolute value 0.5 is below 1, so demand is inelastic. Marks: formula 4, values and judgement 4.
2	Demand for a good is Qd = 140 – 2P and supply is Qs = 20 + 3P. Find the equilibrium price and quantity, stating the equilibrium condition.	The equilibrium condition is Qd = Qs: 140 – 2P = 20 + 3P, so 5P = 120, P = $24, and Q = 140 – 48 = 92 units.
3	With reference to the previous question, a price ceiling of $20 is imposed. Find (a) quantity demanded and quantity supplied; (b) whether a shortage or a surplus arises, and its size.	(a) Qd = 140 – 40 = 100 units; Qs = 20 + 60 = 80 units. (b) Quantity demanded exceeds quantity supplied, so there is a shortage of 100 – 80 = 20 units.
4	With reference to Question 2, the government imposes a specific tax of $5 per unit on sellers. Find (a) the new equilibrium price and quantity; (b) total tax revenue.	(a) The new supply is Qs = 20 + 3(P – 5) = 5 + 3P; 5 + 3P = 140 – 2P gives 5P = 135, P = $27 and Q = 140 – 54 = 86 units. (b) Tax revenue = 5 x 86 = $430.

Section B: Elasticity and Revenue (4 questions, 33 marks)

Elasticity: use percentage changes with the original value as the base; take the absolute value when judging price elasticity.

#	Question	Answer and marking notes
5	With reference to Question 2, the price intercept of demand (where Qd = 0) is $70. Find the consumer surplus at equilibrium.	Consumer surplus = 0.5 x (70 – 24) x 92 = 0.5 x 46 x 92 = $2116.
6	A consumer income rises by 10% and the quantity demanded of a good rises by 25%. Find (a) the income elasticity of demand; (b) the type of good.	(a) Income elasticity = 25 / 10 = 2.5. (b) The positive value makes the good normal; a value above 1 makes it a luxury good, since demand grows faster than income.
7	The price of good B rises by 8% and the quantity demanded of good A rises by 12%. Find (a) the cross price elasticity; (b) the relationship between A and B.	(a) Cross price elasticity = 12 / 8 = 1.5. (b) The positive value shows that A and B are substitutes.
8	The price of a good falls from $50 to $45 while quantity demanded rises from 200 to 240 units. Find (a) the price elasticity of demand as an absolute value; (b) total revenue before and after the price cut, and explain the change.	(a) Change in quantity = (240 – 200) / 200 x 100 = 20.0%; change in price = (45 – 50) / 50 x 100 = -10.0%; PED = 20.0 / (-10.0) = -2.0, whose absolute value 2.0 exceeds 1, so demand is elastic. (b) Revenue before = 50 x 200 = $10,000; after = 45 x 240 = $10,800, a rise of $800, because with elastic demand the rise in quantity outweighs the price cut.

Section C: Government Intervention and Market Efficiency (4 questions, 34 marks)

Intervention: tax revenue = tax per unit x quantity traded; deadweight loss = 0.5 x tax x fall in quantity.

#	Question	Answer and marking notes
9	The price of a good rises by 20% and quantity supplied rises by 30%. Find (a) the price elasticity of supply; (b) whether supply is elastic or inelastic.	(a) Price elasticity of supply = 30 / 20 = 1.5. (b) Since 1.5 exceeds 1, supply is elastic and reacts strongly to a price change.
10	Demand becomes Qd = 170 – 2P while supply remains Qs = 20 + 3P. Find the new equilibrium and explain the effect of the rise in demand.	20 + 3P = 170 – 2P gives 5P = 150, P = $30 and Q = 170 – 60 = 110 units. The rise in demand lifts the equilibrium price from $24 to $30 and quantity from 92 to 110 units.
11	With reference to Question 2, a price floor of $30 is imposed instead. Find (a) quantity demanded and quantity supplied; (b) whether a surplus or a shortage arises, and its size.	(a) Qd = 140 – 60 = 80 units; Qs = 20 + 90 = 110 units. (b) Quantity supplied exceeds quantity demanded, so there is a surplus of 110 – 80 = 30 units.
12	With reference to Question 4, the quantity traded falls from 92 to 86 units after the tax. Find (a) the deadweight loss; (b) explain why a deadweight loss arises.	(a) Deadweight loss = 0.5 x 5 x (92 – 86) = 0.5 x 5 x 6 = $15. (b) The tax raises price and reduces quantity traded, so 6 mutually beneficial transactions no longer take place; the welfare triangle that is not captured as tax revenue is the deadweight loss.

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