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9609 · 3.1.2

Demand and supply — practice questions

Practice and worked examples for 9609 Demand and supply. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

A viral social media trend doubles interest in a fitness app's product. At the existing price there are waiting lists. Explain using demand/supply language.

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Demand has shifted right — taste/awareness increased at every price (marketing/viral promotion effect).

At the original price, quantity demanded exceeds quantity supplied → shortage.

Firm response: raise price (skimming) and/or increase supply (hire trainers, expand server capacity). Shortage signals unmet demand — opportunity if supply can scale.

Worked example 2

A coffee shop, 'Bean Haven', faces the following weekly demand and supply functions for its lattes:

  • Demand: Qd = 1,000 - 200P
  • Supply: Qs = -200 + 200P Where P is the price in dollars ().). (a) Calculate the initial equilibrium price and quantity. (b) The government then imposes a specific tax of $0.50 per latte on coffee shops. Calculate the new equilibrium price and quantity.
Show solution outline

(a) Initial Equilibrium Calculation

Step 1: Find the equilibrium price (P) by setting quantity demanded equal to quantity supplied (Qd = Qs). 1,000 - 200P = -200 + 200P 1,200 = 400P P = 1,200 / 400 **P = 3.00∗∗3.00**

Step 2: Find the equilibrium quantity (Q) by substituting the equilibrium price back into either the demand or supply equation. Using the demand equation: Qd = 1,000 - 200(3) = 1,000 - 600 = 400 The initial equilibrium is a price of $3.00 and a quantity of 400 lattes per week.

(b) New Equilibrium Calculation after Tax

Step 3: Determine the new supply function. The $0.50 tax increases costs for the supplier. The new supply function becomes Qs' = -200 + 200(P - 0.50). Qs' = -200 + 200P - 100 Qs' = -300 + 200P

Step 4: Find the new equilibrium price by setting the original demand equal to the new supply (Qd = Qs'). 1,000 - 200P = -300 + 200P 1,300 = 400P P = 1,300 / 400 **P = 3.25∗∗3.25**

Step 5: Find the new equilibrium quantity by substituting the new price into the demand equation. Qd = 1,000 - 200(3.25) = 1,000 - 650 = 350 The new equilibrium after the tax is a price of $3.25 and a quantity of 350 lattes per week.

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