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Demand · Paper 2 — Free Economics SL Practice Questions
1MasteryLAQLaw of demand and its determinants10 marksPaper 2~15 min
The market for fresh coffee beans in Colombia is initially in equilibrium at a price of Colombian pesos per kilogram and a quantity of kilograms per month.
In early 2023, a severe frost destroyed a significant portion of the Arabica coffee harvest in Brazil, a major global competitor. Simultaneously, a widely publicised medical study concluded that drinking three cups of coffee per day significantly reduces the risk of type 2 diabetes.
(a)
Explain why the medical study is likely to cause an increase in demand for fresh coffee beans in Colombia. [2 marks]
(b)
Using a fully labelled supply and demand , explain the combined effect of the Brazilian frost and the medical study on the equilibrium price and quantity of Colombian coffee beans. [4 marks]
(c)
Evaluate the likely impact of these two events on the welfare of Colombian coffee farmers and Colombian coffee consumers. [4 marks]
Solutions
2MasteryLAQLaw of demand and its determinants10 marksPaper 2~15 min
The market for ride-hailing services (e.g., Uber, Ola) in Mumbai, India, is highly competitive. In January 2024, the Mumbai municipal government introduced an environmental tax of INR 50 per trip on all ride-hailing services, aiming to reduce traffic congestion and air pollution. Simultaneously, incomes in Mumbai have been rising steadily due to growth in the technology and financial services sectors.
(a)
Using a demand , explain how rising incomes are likely to affect the demand for ride-hailing services in Mumbai. Refer to the concept of normal goods and the determinants of demand in your answer. [4 marks]
(b)
Evaluate the combined effect of the environmental tax and rising incomes on the equilibrium price and quantity of ride-hailing trips in Mumbai, considering the perspectives of both passengers and drivers. [6 marks]
Solutions
3ChallengeLAQLaw of demand and its determinants7 marksPaper 2~11 min
The government of Country X introduced a subsidy for electric vehicle (EV) manufacturers in 2023, reducing production costs by . Over the same period, consumer income rose by and the price of petrol — a complement to petrol-powered cars — increased by . The EV market was initially in equilibrium at a price of USD 30,000 per vehicle and a quantity of 100,000 vehicles per year.
(a)
(i) State the Law of Demand. [1 mark]
(ii) Distinguish between a movement along the demand curve and a shift of the demand curve. [2 marks]
(iii) Draw a fully labelled demand illustrating both a movement along the demand curve and a rightward shift of the demand curve. [2 marks]
(ii) Distinguish between a movement along the demand curve and a shift of the demand curve. [2 marks]
(iii) Draw a fully labelled demand illustrating both a movement along the demand curve and a rightward shift of the demand curve. [2 marks]
(b)
Using a demand supply , analyse how the subsidy to EV producers, the rise in consumer income, and the increase in the price of petrol are each likely to affect the equilibrium price and quantity of EVs in Country X. [3 marks]
(c)
Evaluate the claim that the subsidy alone is sufficient to guarantee an increase in the equilibrium quantity of EVs sold in Country X. [2 marks]
Solutions
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