Cambridge IGCSE and O Level Economics
Chapter 9: Price determination
Suggested answers to individual and group activities
Individual activities
1 a
Price of
Brazilian
football
shirts
D
S
P
D
S
0
QD Quantity
of Brazilian
football
shirts
QS
b Price would be expected to rise due to excess demand. Customers, eager to buy the shirts,
would be prepared to pay more.
Suggested answers to multiple choice questions and
four-part question
Multiple choice questions
1
1 B
Equilibrium price occurs when the quantity demanded equals the quantity supplied. There is the
possibility that everything that is produced may not be offered for sale or what is sold consists
of more than that has recently been produced (in such a case stocks may be drawn on). The
number of buyers and sellers do not have to be equal – it is the quantity demanded and supplied
that is significant. If supply exceeds demand, the market will be in disequilibrium.
2 D
A shortage means that demand exceeds supply. The excess demand will push up the price. The
rise in price will stimulate an extension in supply and cause a contraction in demand but more of
the reduced demand will be satisfied so sales will in fact increase.
3 C
When there is excess demand, demand is greater than supply. The diagram below shows that
price, P, is below the equilibrium market price of Px. Sales will be Q1 as this is the quantity that
producers are willing to supply at a price of P. Sales of Q1 are below the market equilibrium level
of Qx and the demand of Q.
Price
D
S
Px
P
D
S
0
Q1
Qx
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Q
Quantity
Cambridge IGCSE and O Level Economics
4 A
A disequilibrium price occurs when either demand exceeds supply or supply exceeds demand. A
shortage or surplus will be occurring. The price mechanism may be working as the price may be
moving back to equilibrium. If there is a market, it must mean that the product is being traded.
Products without an opportunity cost do not have to be bought and sold – they are available to
everyone.
Four-part question
a Opportunity cost is the best alternative forgone. The opportunity cost of buying apples may be,
for instance, buying oranges. Money spent on apples cannot be spent on anything else.
b The market for apples may be in disequilibrium because either demand exceeds supply or supply
exceeds demand. Demand will exceed supply if price is below equilibrium. In this case, there will
be a shortage. Supply will be greater than demand if price is above equilibrium. This time there
will be a surplus.
c A surplus of apples will be eliminated by the downward pressure that market forces put on the
price. Producers, unable to sell all that they want to, will have to lower price. As price falls, supply
will contract and demand will extend until they are both again equal as shown in the diagram
below.
Price
D
S
P
P1
2
D
S
0
Qd
Q1
Qs
Quantity
d Consumers will not benefit from a market being in disequilibrium if price is above the equilibrium
level. Those who do buy the product, Qd quantity on the diagram below, are paying more than
the market price. The quantity bought and sold, Qd, is also below the equilibrium level of Qx. This
means that there are some unsatisfied consumers.
Price
S
D
P
Px
D
S
0
Qd
Qx
Qs
Quantity
Some consumers will benefit from the price being below the equilibrium. In the diagram below,
sales will be Qs at the price of P. There are, however, some unsatisfied consumers at this price.
Indeed, there is a shortage of Qd − Qs.
© Cambridge University Press 2018
Cambridge IGCSE and O Level Economics
Price
D
S
Px
P
D
S
0
Qs
Qx
Qd
Quantity
The greatest satisfaction for consumers in total is gained when the market is in equilibrium. In
this situation, all those willing and able to purchase the product are able to buy it and the price is
at the minimum producers would be prepared to accept to sell that quantity.
3
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