S6 Economics Paper: Price Elasticity, Market Equilibrium And Tax Incidence, A Price Ceiling, Real GDP, Unemployment And The Multiplier (100 Marks)

S6 Economics Paper: Price Elasticity, Market Equilibrium and Tax Incidence, a Price Ceiling, Real GDP, Unemployment and the Multiplier (100 marks)

2026-11-13

S6 Economics – micro and macro calculations

S6 Economics paper: 24 parts on elasticity, tax incidence, price ceiling, real GDP, unemployment and the multiplier, with answers.

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Paper details　S6 Economics practice paper on price elasticity of demand, tax incidence, a price ceiling, real GDP, unemployment and the multiplier, with answers and marking points.

Question 1: Arc Price Elasticity of Demand and Total Revenue (16 marks)

The monthly fee of an online course falls from $10 to $8, and enrolments rise from 100 to 140 students. Use the arc (midpoint) method.

#	Question	Answer and marking notes
1	Find the percentage change in price.	Answer: dP = 8 – 10 = -2; average price = $9.0; -2 / 9.0 x 100% = -22.22%. (Marking: average price 2, percentage 2)
2	Find the percentage change in quantity demanded.	Answer: dQ = 140 – 100 = 40; average quantity = 120; 40 / 120 x 100% = +33.33%. (Marking: average quantity 2, percentage 2)
3	Find the price elasticity of demand (absolute value) and state whether demand is elastic, unitary or inelastic.	Answer: 33.33% / 22.22% = 1.50; the value exceeds one, so demand is elastic. (Marking: elasticity 2, conclusion 2)
4	Find total revenue before and after the price cut and explain the link between the change in total revenue and elasticity.	Answer: before, $10 x 100 = $1000; after, $8 x 140 = $1120, a rise of $120. With elastic demand the percentage rise in quantity exceeds the percentage fall in price, so total revenue rises. (Marking: revenues 2, explanation 2)

Question 2: Market Equilibrium and the Incidence of a Per-unit Tax (16 marks)

In a market, demand is Qd = 120 – 4P and supply is Qs = 2P, where P is the price per unit in dollars and Q is the quantity in thousand units.

#	Question	Answer and marking notes
5	Find the equilibrium price and quantity.	Answer: 120 – 4P = 2P gives P = $20 and Q = 40 thousand units. (Marking: equation 2, price and quantity 1 each)
6	The government imposes a per-unit tax of $3 on sellers. Find the new price paid by buyers and the new quantity traded.	Answer: supply becomes Qs = 2(P – 3); 120 – 4P = 2P – 6 gives P = $21 and Q = 36 thousand units. (Marking: new supply 2, price and quantity 1 each)
7	Find the price actually received by sellers and the percentage of the tax borne by buyers and by sellers.	Answer: sellers receive $21 – $3 = $18; buyers bear $21 – $20 = $1, that is 33.33%; sellers bear $20 – $18 = $2, that is 66.67%. (Marking: seller price 1, each burden 1, percentages 1)
8	Find the government tax revenue and explain why buyers bear the smaller share of the tax.	Answer: $3 x 36 thousand = $108 thousand. At equilibrium demand elasticity is 2.0 and supply elasticity is 1.0; demand is relatively more elastic, so buyers can shift more of the tax onto sellers and bear the smaller share. (Marking: revenue 2, elasticity comparison 2)

Question 3: A Price Ceiling and the Shortage (16 marks)

The government considers the equilibrium price too high and sets a price ceiling of $15 per unit. Demand remains Qd = 120 – 4P and supply remains Qs = 2P.

#	Question	Answer and marking notes
9	Find the quantity demanded at the price ceiling.	Answer: Qd = 120 – 4 x 15 = 60 thousand units. (Marking: substitution 2, answer 2)
10	Find the quantity supplied at the price ceiling.	Answer: Qs = 2 x 15 = 30 thousand units. (Marking: substitution 2, answer 2)
11	Find the size of the shortage and state the quantity actually traded.	Answer: shortage = 60 – 30 = 30 thousand units; the quantity traded is limited by supply to 30 thousand units. (Marking: shortage 2, traded quantity 2)
12	Explain the queuing, rationing and black market that may appear under a price ceiling, and why the allocation of resources may be inefficient.	Answer: the price is below equilibrium, so quantity demanded exceeds quantity supplied; sellers may ration by queuing or allocation. Some buyers will pay above the ceiling, so a black market appears. The price no longer reflects marginal value, marginal cost is below the marginal value of some buyers, the quantity traded is below the equilibrium level and total surplus falls, so the allocation may be inefficient. (Marking: rationing 1, black market 1, inefficiency 2)

Question 4: Nominal and Real GDP (16 marks)

An economy has nominal GDP of $800.0 billion in year 1 and $880.0 billion in year 2. The consumer price index rises from 100 to 108. Population grows from 5.00 million to 5.05 million.

#	Question	Answer and marking notes
13	Find real GDP in year 2 at year 1 prices.	Answer: 880.0 / (108 / 100) = 814.81 billion dollars. (Marking: deflating 2, answer 2)
14	Find the real economic growth rate in year 2.	Answer: (814.81 – 800.0) / 800.0 x 100% = 1.85%. (Marking: formula 2, answer 2)
15	Find nominal GDP per capita in year 2.	Answer: 880.0 x 10^9 / (5.05 x 10^6) = $174257. (Marking: units 2, answer 2)
16	Find the growth rate of real GDP per capita in year 2 and explain why it is below the real growth rate.	Answer: real GDP per capita is $160000 in year 1 and $161349 in year 2, so growth is (161349 – 160000) / 160000 x 100% = 0.84%. Population also rises by 1.00%, which dilutes the gain in output per person, so the per capita growth rate is below the real growth rate. (Marking: levels 2, rate 1, explanation 1)

Question 5: Unemployment Rate and Labour Force Participation Rate (18 marks)

In an economy the population aged 15 and over is 7.50 million, the labour force is 3.90 million and employment is 3.70 million.

#	Question	Answer and marking notes
17	Find the number of unemployed people.	Answer: 3.90 – 3.70 = 0.20 million. (Marking: definition 2, answer 2)
18	Find the unemployment rate.	Answer: 0.20 / 3.90 x 100% = 5.13%. (Marking: formula 2, answer 2)
19	Find the labour force participation rate and explain how its denominator differs from that of the unemployment rate.	Answer: 3.90 / 7.50 x 100% = 52.00%. The unemployment rate uses the labour force (employed plus unemployed) as its denominator, while the participation rate uses the population aged 15 and over, which also counts people outside the labour market such as full-time students and retirees. (Marking: rate 2, denominators 2, example 1)
20	If 0.05 million discouraged workers leave the labour force, find the new unemployment rate and explain why the unemployment rate may understate the problem.	Answer: unemployed becomes 0.20 – 0.05 = 0.15 million and the labour force becomes 3.90 – 0.05 = 3.85 million, so the rate is 0.15 / 3.85 x 100% = 3.90%, lower than before. Discouraged workers who stop searching leave the labour force and are not counted as unemployed, so the rate falls although the problem has not improved; underemployed part-time workers and skills mismatch are also counted as employed. (Marking: new rate 2, discouraged workers 2, other reason 1)

Question 6: The Multiplier, a Deflationary Gap and the Real Interest Rate (18 marks)

An economy has a marginal propensity to consume of 0.8 and investment is exogenous. Potential output is $1000 hundred million while actual output is $960 hundred million. The nominal interest rate is 6% and inflation is 3%.

#	Question	Answer and marking notes
21	Find the expenditure multiplier.	Answer: 1 / (1 – 0.8) = 5.0. (Marking: formula 2, answer 2)
22	If investment rises by $40 hundred million, find the change in equilibrium output.	Answer: 5.0 x 40 = 200 hundred million dollars. (Marking: multiplier 2, answer 2)
23	Find the deflationary gap and the extra injection the government needs so that output reaches potential.	Answer: the gap is 1000 – 960 = 40 hundred million; the injection needed is 40 / 5.0 = 8 hundred million. (Marking: gap 2, multiplier 2, answer 1)
24	Find the real interest rate and explain what happens to the purchasing power of cash held under this inflation.	Answer: (1 + 0.06) / (1 + 0.03) – 1 = 0.0291, so the real interest rate is about 2.91%. Inflation of 3% exceeds the nominal rate of 6%, so prices rise faster than cash balances grow and the purchasing power of cash falls by about 3.00% a year. (Marking: real rate 2, purchasing power 2, conclusion 1)

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