Page 1/7
Answers to Pop quizzes and other questions
Section 1.1 – markets (Chapters 4 – 8)
Note that the answers below are my own and have no links to ‘official’ IB exam questions. I have not included
the questions for the simple reason that one might reasonably assume that you have a copy of the book – and I
am simply not interested in providing free-riders with material. I have left these answers ‘unlocked’ in that you
may print them out and re-vamp them to your needs. Again, feel free to write me with comments and/or
questions at matt.ibid@hotmail.com
S1.1 Ch 4
HL extension on the demand function
Page 35
Pop Quiz 4.1
1. i) to iii) are moot.
2. Error: the five prices should go from $100 to zero! Stick in each price value into the D-function:
Price
Qd
100
0
75
50
50
100
25
0
150
200
Page 2/7
3. Plotting out the demand curve using the values in the above table:
P ($/unit)
100
Qd = 200 - 2P
75
50
25
D
0
50
100
150
200
Q/t
4. Again, a bit of an error; the question should read “…20% change in autonomous demand…but no change
in slope…” A decrease in the price of a substitute will decrease demand for this good. The new Qintercept is thus 160 (200 * 0.8) and the new D-function is Qd = 160 – 2p. Putting this in a table and
diagram…
Price
Qd
80
0
60
40
40
80
20
0
120
160
Note that we get a new price intercept of $80. (This is given by dividing ‘a’ with ‘b’, i.e. 160/2.) The shift in the
demand curve tells us that the quantity demanded has decreased by 40 units at all price levels – which is termed
a decrease in demand.
Page 3/7
P ($/unit)
100
80
Qd = 200 - 2P
60
40
Qd = 160 - 2P
20
D1
0
40
D0
80 120 160 200
Q/t
5. At a Q-intercept of 200 (D0, the original), for every dollar increase in price the quantity demanded will
decrease by 3; slope = ‘run over rise’ → slope = -3/1. Thus our new demand function is Qd = 200 – 3P.
The new price intercept is $66.6 (200/3) so we indeed see that this good has become more sensitive to a
change in price as there is a larger decrease in quantity demanded for any given increase in price.
Price
Qd
66.7
0
49.9
60.2
33.3
93
16.6
0
126.8
200
P ($/unit)
100
Qd = 200 - 2P
66
D1
Qd = 200 - 3P
49
33
D0
16
0
60
93
Q/t
126
200
Page 4/7
S1.1 Ch 5
HL extension on supply function
Page 46
Pop Quiz 5.1
1. i) to iii) are moot.
2. The supply function Qs = 200 + 10P gives us the following table of quantity supplied at five different
prices:
Price
Qs
0
200
10
300
20
400
30
500
40
600
3. Putting these values into a basic diagram:
P ($/unit)
S
40
Qs = 200 + 10P
30
20
10
0
-20
200
300
400
500
600
Q/t
The negative portion of the P-axis is included
simply to illustrate that any supply curve with a
positive value of ’c’ (the Q-axis intercept) will
have a negative P-axis intercept.
4. Again, a bit of an error here. The question reads “…20% change in supply…” but should in fact read
“…20% change in autonomous supply…” In any case, a decrease in the price of raw material causes
Page 5/7
supply to increase – in this case we get a parallel shift of the supply curve to the right (increase in supply)
and a new S-function based on a 20% increase in autonomous supply:
Qs = 240 + 10P.
Table for the new Qs at various prices:
Price
0
10
20
30
40
Qs
240
340
440
540
640
P ($/unit)
Qs = 200 + 10P
S0
S1
40
Qs = 240 + 10P
30
20
10
0
200 240 340
440
Q/t
540 640
-20
-24
The new P-intercept is calculated by inserting Q = 0 into the S-function and solving for P (as an absolute
number – we know it will be negative!), as in 0 = 240 + 10P → 240 = 10P → P = 240/10 → P =
│24│or -24.
An alternative method to calculate the new P-intercept – perhaps easier – is by increasing the original Pintercept value (in absolute values, e.g. │1│ and not ‘-1’) by the same percentage as the increase in
autonomous supply (‘c’ in the S-function). Original ‘c’, the Q-intercept, was 200 and increased by 20%
to 240, so increasing the P-intercept (again, in absolute values!) by the same percentage gives us │24│or
-24 in reality.
The end result is that quantity supplied has increased by 40 units at all price levels – which is known as
an increase in supply.
Page 6/7
5. Note that the question reads “…the new Q-intercept remains unchanged…” and since we are changing
the slope, the P-intercept must change.
The new S-function has a slope (again, ‘run over rise’) that is 8, since ‘run’ (ΔQ) divided by ‘rise’ (ΔP)
is 8/1. The new S-function becomes Qs = 200 + 8P.
Price
0
10
20
30
40
Qs
200
280
360
440
520
P ($/unit)
Qs = 200 + 8P
S1
S0
40
Qs = 200 + 10P
30
20
10
0
200 280 360 440 520
Q/t
-20
-25
The new P-intercept is easiest calculated by inserting Q = 0 into the supply function and solving for P in
absolute terms (we know it is a negative value!): 0 = 200 + 8P → 200 = 8P → P = 200 /8 → P = │25│,
i.e. -25.
Page 7/7
S1.1 Ch 6
Market equilibrium
Page 58
Pop Quiz 6.4
1. One reasonable expectation – and this proved to be the case – that the increased price of oil and thus
gasoline (petrol) would lead to an increase in demand for alternative energy. One such alternative is solar
panels on houses. The rise demand for solar panels drove up the price of them.
2. The demand for silicon is derived from the demand for photovoltaic solar cells. The increased demand
for solar panels led to an increase in demand for silicon since silicon is used in the production of
photovoltaic solar cells.
3. Increasing demand and thus price of oil leads to a search for substitutes – here, solar energy – which
drives up the price of silicon. Silicon is used in computer chips, so a rise in the price of silicon drives up
costs for chip makers and the cost of manufacturing computers.
4. There is no contradiction! One need simply keep clear what is ‘cause’ and what is ‘effect’. It is of course
the increased demand (= shift right of D-curve) that causes the rise in the price of houses.
5. Straightforward supply and demand curves, possibly using inelastic curves (see Chapters 11 and 12) to
convey the concept of short run, where demand or supply increases/decreases during high/low season.
For example, demand for scooter rentals in tourist areas will rise in the high season and fall in low
season. Concomitantly, supply of strawberries in Alaska will rise in July but fall (seriously fall!) in
November. This results in seasonal price fluctuations.
6. The expectations-effect means that we act ‘before the fact’ – e.g. when investors/speculators believe that
prices will adjust downwards, two things will happen; they will sell off properties (= increase in market
supply) and be wary of being additional properties (= fall in market demand). Taken together, one might
expect the market price for houses to fall.
Page 8/7
S1.1 Ch 6
Linear supply and demand functions
Page 63
Paper 3 example for HL
1. Qs = -40 + 30P and Qd = 200 -10P
a. Price is calculated by solving -40 + 30P = 200 – 10P → 40P = 240 → P = €6
b. Put in the D-curve ‘limits’ first, i.e. the Q and P intercepts for the demand curve.
c. Draw the curves…
i. The Q-intercept for demand is ‘b’, 200 units. The P-intercept is ‘b’/’a’ (absolute values)
200/10 = €20.
ii. The same for the supply curve, where Q-intercept is ‘d’, -40, and the P-intercept is
‘d’/’c’ (use absolute values and forget the underlying maths – we know that the Pintercept will be a positive value since the Q-intercept is negative!) gives us €1.33.
d. The price is €6, so inserting this into either of the functions gives us quantity. 200 – 10 * 6 = 140
units per week.
P (€/unit)
20
S
10
7
6
1.33
3
-40
D0
0
100
140
170 200
D1
Q/t (units/week)
2. This question should read “…demand increases by 40 units at all prices…” rather than “…40%...”
a. New D-function is Qd = 240 – 10P
b. See diagram above.
c. Increased demand (D0 to D1) causes upward pressure on the price (P0 to P1 – or, rather, €6 to €7)
and thus an increase in quantity supplied (Q0 to Q1, 140 to 170 units/week).
d. Solve for -40 + 30P = 240 – 10P → 40P = 280 → P = €7
e. A minimum price at €6 would mean unchanged Qs but an increase in Qd – and thus an excess of
demand. Qd at a price of €6 is given by 240 – 10*6 = 180 units. The excess in demand is 40
units.
3. The new supply function, Qs = -10 + 30P, has the same slope (‘d’) and gives the supply curve a Pintercept of 0.33. This is €1 lower than the previous P-intercept – this is the subsidy per unit.