CCEA A Level Economics
CCEA A Level Economics AS 1 Demand and Supply, Markets and Equilibrium Exam Questions
Free CCEA A Level Economics revision for AS 1 Demand and Supply, Markets and Equilibrium: what you need to know, common mistakes and exam-style questions with answers. Covers determinants of demand and supply, shifts, consumer and producer surplus, equilibrium, the price mechanism, interrelated markets and taxes.
Practise AS 1 Demand and Supply, Markets and Equilibrium with past papers
Once you have learnt this topic, find the AS 1 Demand and Supply, Markets and Equilibrium questions in real CCEA A Level Economics past papers and mark them with the mark scheme. Doing lots of real questions is the quickest way to learn how examiners ask about each idea.
About CCEA A Level Economics AS 1 Demand and Supply, Markets and Equilibrium
Demand and supply in product markets and markets and equilibrium are the core of Unit AS 1: Markets and Market Failure. You need to explain what determines demand and supply, distinguish a movement along a curve from a shift, and show consumer and producer surplus. You then bring the two together to find equilibrium, explain how the price mechanism rations, signals and gives incentives, analyse interrelated markets (joint, competitive, composite and derived demand) and show the effects of indirect taxes and subsidies, including incidence. CCEA case studies frequently ask for a correctly labelled diagram showing a change in equilibrium, followed by analysis of consumers and producers affected.
What you need to know
- Demand The quantity consumers are willing and able to buy at each price. Price changes cause movements along the curve; shifts come from income, tastes, prices of substitutes and complements, advertising and population.
- Supply The quantity firms are willing and able to sell at each price. Shifts come from costs of production, technology, indirect taxes, subsidies, weather and the number of firms.
- Surplus Consumer surplus is the difference between what consumers are willing to pay and what they pay (area below demand, above price). Producer surplus is the difference between price received and the minimum price firms would accept.
- Equilibrium and the price mechanism Equilibrium is where demand equals supply. Excess demand pushes price up and excess supply pushes it down. Price acts as a signal, an incentive and a rationing device to allocate resources.
- Interrelated markets Joint demand (complements), competitive demand (substitutes), composite demand (one good with several uses) and derived demand (demand for a factor comes from demand for the product).
- Taxes and subsidies A specific tax shifts supply vertically upwards by the amount of the tax; an ad valorem tax pivots it. The incidence on consumers and producers depends on the price elasticities. A subsidy shifts supply downwards, lowering price and raising output.
Common mistakes in AS 1 Demand and Supply, Markets and Equilibrium
- Shifting the demand curve when the good's own price changes; that is a movement along the curve.
- Leaving diagrams unlabelled or failing to show the old and new equilibrium price and quantity.
- Assuming the whole of a tax is passed on to consumers; incidence depends on elasticity.
- Confusing a fall in supply with a fall in quantity supplied.
- Describing equilibrium without explaining how excess demand or supply is eliminated through price changes.
Try three AS 1 Demand and Supply, Markets and Equilibrium exam-style questions
1. Using a demand and supply diagram, explain the effect of a rise in the price of milk on the market for breakfast cereal. (4 marks)
Show the mark scheme answer
Milk and cereal are complements in joint demand; higher milk price reduces demand for cereal; demand curve shifts left; equilibrium price and quantity of cereal both fall (correctly labelled diagram).
2. Explain the three functions of the price mechanism. (6 marks)
Show the mark scheme answer
Signalling: price changes give information to producers and consumers about scarcity; incentive: higher prices encourage firms to supply more because profits rise; rationing: higher prices reduce quantity demanded so scarce goods go to those willing and able to pay most.
3. With the help of a diagram, explain the effect of a specific tax on the incidence borne by consumers and producers. (6 marks)
Show the mark scheme answer
Supply shifts vertically up by the amount of the tax; price rises and quantity falls; consumer burden is the rise in price paid; producer burden is the fall in price received after tax; the more price inelastic demand, the greater the consumer share; tax revenue is the rectangle of tax x new quantity.
AS 1 Demand and Supply, Markets and Equilibrium FAQs
What does CCEA A Level Economics AS 1 Demand and Supply, Markets and Equilibrium cover?
Determinants of demand and supply, movements and shifts, consumer and producer surplus, equilibrium, the functions of price, interrelated markets and the effects of taxes and subsidies.
Which unit is this topic examined in?
It is in Unit AS 1: Markets and Market Failure, a 1 hour 30 minute paper with short-answer questions, a case study and an extended response question.
How do I get full marks on a demand and supply diagram?
Label both axes (price and quantity), both curves, the original and new equilibrium prices and quantities, and show the direction of any shift with an arrow. Then refer to the diagram in your written analysis.
