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Competitive Market Equilibrium · Paper 2 — Free Economics HL Practice Questions
1MasteryLAQThe concept of equilibrium price and quantity7 marksPaper 2~11 min
In the country of Andoria, the market for hover-bikes is perfectly competitive. The demand for hover-bikes is represented by the equation , and the supply of hover-bikes is represented by the equation , where is the quantity demanded per month, is the quantity supplied per month, and is the price in USD.
(a)
Calculate the equilibrium price and quantity for hover-bikes in Andoria. [4 marks]
(b)
(i) The government of Andoria introduces a maximum price (price ceiling) of USD 800 per hover-bike. Calculate the size of the shortage that results. [3]
(ii) Evaluate the consequences of this price ceiling for consumers, producers, and allocative efficiency in the hover-bike market. [3 marks]
(ii) Evaluate the consequences of this price ceiling for consumers, producers, and allocative efficiency in the hover-bike market. [3 marks]
Solutions
2MasteryLAQThe concept of equilibrium price and quantity10 marksPaper 2~15 min
In the nation of Gilead, the market for organic grain is perfectly competitive. The market is currently in equilibrium at a price of USD 50 per tonne and a quantity of tonnes traded per month. A recent scientific report has revealed that organic grain consumption significantly reduces the risk of heart disease. Simultaneously, a new farming technology has lowered the cost of producing organic grain.
(a)
Draw a fully labelled supply and demand for the market for organic grain Gilead, showing the effect of these two simultaneous changes. [2 marks]
(b)
Using your , explain how the equilibrium price and quantity are affected when both demand supply increase simultaneously. [2 marks]
(c)
Evaluate the likely outcome for the equilibrium price and quantity of organic grain if the increase in demand is proportionally larger than the increase in supply. In your answer, reach an overall judgement about the direction of net welfare change for consumers and producers combined. [6 marks]
Solutions
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