## Resource Material for IB Economics HL

Past Paper Sample Questions for Section 1 Microeconomics

Topic - Competitive markets: Demand and Supply

- Question 1
- Question 2
- Question 3

**Question 1 **[Total: 25 marks]

- In a demand function of the general form Q
_{d }= a – bP, outline the meaning of the parameter a and of the parameter −b. [2 marks]

- Outline the meaning of the negative slope in this function. In the demand function Q
_{d}= 35 − 5P_{, }Q_{d}represents the quantity of good Z demanded per month in thousands of units, and P represents the price per unit of Z in $. [2 marks]

- Construct a graph of the corresponding demand curves. [1 mark]

- Calculate the values of Qd when P = $3, and P = $4. [2 marks]

- Calculate the values of P when Qd = 5 thousand, and Qd = 25 thousand. [2 marks]

- Calculate the vertical and horizontal intercepts using the function. [2 marks]

- Identify the vertical and horizontal intercepts on your graph. [2 marks]

- Assume that due to an increase in income levels, 5 thousand fewer units of Z are demanded at each Price. Determine the equation for the new demand function. [2 marks]

- Identify the vertical and horizontal intercepts of the new demand function in your graph and graph the new demand curve. [3 marks]

- Assume that due to a change in tastes, 10 thousand more units of Z are demanded at each price (relative to the initial demand function). Determine the equation for the new demand function. [2 marks]

- Draw the new demand curve on your graph. [1 mark]

- If the slope changes to −3, state the new demand function and outline how the change in slope affects the steepness of the demand curve. [2 marks]

- Outline the relationship between an individual consumer’s demand and market demand. [2 marks]

**Question 2 **[Total: 25 marks]

- In a supply function of the general form Q s = c + DP
_{,}outline the meaning of the Parameter c and of the parameter +d. [2 marks]

- Outline the meaning of the positive slope in this function. In the supply function Q s = −10 + 10P, Q s represents the quantity of good Z supplied per month in thousands of units, and P represents the price per unit of Z in $. [2 marks]

- Construct a graph of the corresponding supply curve, including only positive values for Q s, up to the points where P = 5. [1 mark]

- Calculate the values of Q s when P = $3 and P = $4. [2 marks]

- Calculate the values of P when Q s = 10 thousand, and Q s = 25 thousand. [2 marks]

- Calculate the vertical and horizontal intercepts using the function; which of these does not appear In your graph? [3 marks]

- Identify on your graph the intercept with a positive value. [1 mark]

- Assume that due to new technology, 5 thousand more units of Z are supplied at each price. Determine the new supply function. [2 marks]

- Calculate the new vertical and horizontal intercepts using the function. [2 marks]

- Graph the new supply curve, including only positive values for Q s, up to the point where P = 4. [1 mark]

- Assume that due to a reduction in the number of the firm in the industry, 5 thousand fewer units of Z is supplied at each price (relative to the initial Supply function). Determine the new supply function. [2 marks]

- Draw the new supply curve on your graph. [1 mark]

- If the slope changes to +15, state the new supply function and outline how the change in slope affects the steepness of the supply curve. [2 marks]

- Outline the relationship between an individual firm’s supply and market supply. [2 marks]

**Question 3 **[Total: 25 marks]

In the demand function, Q d = 35 − 5P and the supply function Q _{s} = −10 + 10P_{,} Q _{d, }and Q _{s} are quantities demanded and supplied per month in thousands of units of good Z and P is the price in $.

- Calculate the equilibrium price and quantity. [2 marks]

- Plot the demand and supply curves, and identify the equilibrium price and quantity on your graph. [4 marks]

- When P = 6, and P = 2, determine whether there is excess demand or excess supply, and calculate the amount of this in each case. [6 marks]

- Explain how excess demand and excess supply work to restore equilibrium in the market. [4 marks]

- Due to an increase in resource prices, 15 thousand fewer units of Z are supplied at each price. State the new supply equation and plot the new supply curve on your graph. [2 marks]

- Determine the new equilibrium price and quantity mathematically and on your graph. [3 marks]

- Explain how price works as a signal and incentive to restore equilibrium in the market following the decrease in supply. [4 marks]