WJEC A Level Economics
WJEC A Level Economics Demand and Supply in Product Markets Exam Questions
Free WJEC A Level Economics revision for Demand and Supply in Product Markets: what you need to know, common mistakes and exam-style questions with answers. Covers determinants of demand and supply, equilibrium, consumer and producer surplus, and price, income, cross and supply elasticities.
Practise Demand and Supply in Product Markets with past papers
Once you have learnt this topic, find the Demand and Supply in Product Markets questions in real WJEC 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 WJEC A Level Economics Demand and Supply in Product Markets
Demand and supply in product markets is the central AS microeconomics topic in WJEC Economics. You need to explain the factors that shift demand and supply, how equilibrium price and output are determined in a freely competitive market, and how consumer and producer surplus measure the gains from trade. The topic also includes price, income and cross price elasticities of demand and price elasticity of supply, with their determinants and uses for firms and government. It is examined in AS Units 1 and 2, where Unit 2 data response questions often give price and quantity data to analyse. Accurate diagrams and correct elasticity calculations earn many marks.
What you need to know
- Determinants of demand Demand depends on price, disposable income, prices of substitutes and complements, tastes and fashion, advertising, population and its age structure, and expectations. A change in a non-price factor shifts the demand curve.
- Determinants of supply Supply depends on price, costs of production, technology, productivity, indirect taxes and subsidies, the number of producers and unexpected events such as weather.
- Equilibrium At equilibrium the quantity demanded equals the quantity supplied, so there is no pressure for price to change. A shift in demand or supply creates excess demand or supply until a new equilibrium is reached.
- Consumer and producer surplus Consumer surplus is the area between the demand curve and the price; producer surplus is the area between the price and the supply curve. Together they show the total welfare gained from a market.
- Price elasticity of demand PED = %ΔQd / %ΔP. Demand is price elastic when the absolute value is above 1, inelastic below 1 and unit elastic at 1. PED determines how total revenue changes when price changes and the incidence of an indirect tax.
- YED and XED Income elasticity of demand separates normal goods (positive) from inferior goods (negative), and luxuries (above +1). Cross elasticity shows whether goods are substitutes (positive) or complements (negative).
- Price elasticity of supply PES = %ΔQs / %ΔP. Supply is more elastic when firms have spare capacity, can store stock, can switch factors easily and have more time to respond.
Common mistakes in Demand and Supply in Product Markets
- Confusing a change in demand with a change in quantity demanded. A price change causes a movement along the demand curve; other factors shift it.
- Using absolute changes instead of percentage changes in elasticity formulas. Convert both changes to percentages first.
- Stating that PED is always negative so it must be elastic. Elasticity depends on the size of the value, not its sign.
- Claiming a firm should always raise prices to raise revenue. Revenue only rises if demand is price inelastic.
- Drawing a diagram without labelling the original and new equilibria. Mark P1, Q1 and P2, Q2 clearly.
Try three Demand and Supply in Product Markets exam-style questions
1. Consumer incomes rise by 4% and demand for bus travel falls by 2%. Calculate the income elasticity of demand and state what type of good bus travel is. (2 marks)
Show the mark scheme answer
YED = -2 / 4 = -0.5; negative YED means bus travel is an inferior good.
2. Explain two factors that would make demand for a branded smartphone price inelastic. (4 marks)
Show the mark scheme answer
Few close substitutes because of strong brand loyalty; seen as a necessity or habitual purchase; so consumers keep buying when price rises; (or the purchase is made on contract so the price is spread out).
3. Using a diagram, explain the effect of a fall in the price of coffee on the market for milk. (4 marks)
Show the mark scheme answer
Coffee and milk are complements; a fall in the price of coffee increases quantity demanded of coffee; demand for milk shifts right; price and quantity of milk rise; correct diagram.
Demand and Supply in Product Markets FAQs
What does WJEC A Level Economics Demand and Supply in Product Markets cover?
It covers the factors affecting demand and supply, equilibrium price and output, consumer and producer surplus, and price, income and cross price elasticities of demand and price elasticity of supply.
Which unit is Demand and Supply in Product Markets examined in?
It is AS content, so it is examined in AS Unit 1 (Introduction to Economic Principles) and AS Unit 2 (Economics in Action). A2 Unit 4 assesses all A level content, so it can be drawn on again there.
How do I use elasticity in data response answers?
Calculate the elasticity correctly, then interpret it: say whether it is elastic or inelastic, what that means for revenue or a tax, and what the result depends on, such as time period or availability of substitutes.
