The market for fresh bread in Bellaria

Read the extracts and answer the questions that follow.

Text A — A change in production costs

1. Bakeries in Bellaria compete to sell fresh bread. A fall in flour prices reduced bakeries’ costs and increased the supply of bread. At the post-change price of 4 bellars per loaf shown in Table 1, bakeries offered more loaves than consumers wished to buy.

2. Falling bread prices provided an incentive for consumers to buy more but encouraged bakeries to reduce the quantity supplied until a new equilibrium was reached.

Text B — Costs and benefits

1. The supply curve can be interpreted as the marginal cost of producing an additional loaf. The demand curve represents the marginal benefit consumers receive.

2. Bakeries support flexible prices because they clear unsold stocks. However, they may experience lower revenue per loaf, and adjustment can involve waste when bread is perishable.

Table 1 — Bread market at a price of 4 bellars per loaf

Post-change bread market at a price of 4 bellars per loaf. This price is above the new equilibrium price, so the table shows excess supply.

Table 2 — Equilibrium quantity before and after flour prices fell

Equilibrium quantity of bread before and after flour prices fell.

Bicycle market in Belland

The number of commuters using bicycles in Belland has increased following the opening of new cycle lanes. Initially, the market was in equilibrium. The change in commuting preferences then increased demand. Six months later, new bicycle-assembly workshops entered the market and increased supply.

All curves in Table 1 are linear. Quantities are measured in thousands of bicycles per month.

Table 1: Demand and supply for bicycles

Demand and supply schedules for bicycles in Belland.

The government is considering vocational training and start-up assistance for bicycle mechanics and assemblers. It expects this policy to make supply more responsive to future increases in demand.

Private tutoring market in Rovina

A new national examination increased demand for private tutoring in Rovina. In the short run, the number of qualified tutors remained unchanged. Table 1 shows the initial demand curve, the new demand curve and the market supply curve. Quantities are measured in thousands of one-hour tutoring sessions per week.

Table 1: Market for private tutoring

Market demand and supply data for private tutoring in Rovina.

Assume that the demand and supply curves are linear between the tabulated points for any surplus calculations.

The government is considering financing additional tutor training and providing free online revision materials. Tutor training is expected to increase supply, while online materials may reduce some households' demand for private tutoring.

The market for rooftop solar panels in Solaria

Read the extracts and answer the questions that follow.

Text A — Market expansion

1. Higher household electricity prices increased demand for rooftop solar panels. The resulting increase in panel prices performed a signalling function by communicating stronger demand to manufacturers.

2. Manufacturers expanded production. Later, improvements in manufacturing technology reduced unit costs and increased supply, lowering the equilibrium price while increasing the quantity traded.

Text B — Market welfare

1. Economists estimated the social surplus in the panel market by adding consumer surplus and producer surplus. They argued that voluntary exchanges at the competitive equilibrium generate the greatest combined surplus represented by the demand and supply curves.

2. Consumer organizations note that the division of social surplus may be unequal. A market can therefore maximize measured surplus without ensuring that all households can afford a panel.

Table 1 — Solar-panel market at a price of 500 solars

Solar-panel market quantities at a price of 500 solars per panel.

Table 2 — Equilibrium quantity before and after the technological improvement

Equilibrium quantity of solar panels before and after the technological improvement.

The wheat market in Agrona

Read the extracts and answer the questions that follow.

Text A — Competing changes

1. Rising incomes increased demand for bread and therefore for wheat. At the same time, improved seeds increased wheat yields and supply. Both changes increased the equilibrium quantity, but their separate effects on equilibrium price were opposite.

2. Higher expected returns encouraged the resource allocation of land, labour and machinery toward wheat farming. If supply expanded more strongly than demand, the wheat price would fall.

Text B — Efficient output

1. Economists describe the competitive equilibrium as allocative efficiency because the marginal benefit of the final unit equals its marginal cost and social surplus is maximized.

2. Farmers value the information communicated by prices, although they note that seed adoption takes time and that future demand is uncertain.

Table 1 — Wheat market at a price of 14 agrons per tonne

Wheat market quantities at a price of 14 agrons per tonne.

Table 2 — Equilibrium quantity before and after the simultaneous changes

Equilibrium quantity of wheat before and after simultaneous increases in demand and supply.

The avocado market in Verdia

Read the extracts and answer the questions that follow.

Text A — Export popularity and drought

1. Foreign consumers developed a stronger preference for Verdian avocados, increasing market demand. The equilibrium price rose and farmers planted more avocado trees.

2. A drought then reduced harvests. The price immediately before the drought was 18 verds per crate. At this previous price, sellers could not meet demand, while the eventual price increase encouraged consumers to reduce purchases.

Text B — Unsold output and welfare

1. In years with unusually large harvests, the market may instead experience excess supply. Farmers then lower prices to sell perishable fruit.

2. Exporters argue that prices direct land and labour toward their most valued uses. Local consumers respond that high export demand may reduce their ability to afford avocados.

Table 1 — Avocado market at a price of 18 verds per crate

Avocado market quantities at a price of 18 verds per crate.

Table 2 — Equilibrium quantity before and after the drought

Equilibrium quantity of avocados before and after the drought.

The market for used textbooks in Libria

Read the extracts and answer the questions that follow.

Text A — A new academic year

1. At the beginning of the academic year, enrolment increased and shifted demand for used textbooks to the right. Prices rose until buyers’ and sellers’ plans were consistent.

2. Students who would have paid more than the market price received consumer surplus. Higher prices encouraged owners of textbooks to offer more books for sale.

Text B — Benefits from additional books

1. The demand curve represents marginal benefit, because it shows the maximum amount buyers are willing to pay for each additional textbook. The supply curve shows sellers’ minimum acceptable prices.

2. Students value the role of prices in bringing more books to market, although some lower-income students are unable to purchase books at the new equilibrium price.

Table 1 — Textbook market at a price of 30 librans

Used textbook market data at a price of 30 librans per textbook.

Table 2 — Equilibrium quantity before and after enrolment increased

Equilibrium quantity of used textbooks before and after enrolment increased.

The market for guest rooms in Islara

Read the extracts and answer the questions that follow.

Text A — Festival demand

1. An international music festival increased demand for guest rooms in Islara. Room prices rose and owners converted unused buildings into accommodation.

2. The higher price increased the return earned above some owners’ minimum acceptable price, raising their producer surplus.

Text B — Limited rooms

1. While new rooms were being prepared, price performed a rationing function by reducing the number of visitors willing and able to book accommodation.

2. Tourism businesses support the market response because it attracts resources into accommodation. Residents are concerned that conversion of buildings takes time and that high prices exclude some visitors.

Table 1 — Guest-room market during the festival at a nightly price of 80 islas

Guest-room demand and supply at a nightly price of 80 islas.

Table 2 — Equilibrium quantity before and during the festival

Equilibrium quantity of guest-room nights before and during the festival.

For the immediate effect of the festival demand increase, assume that the supply curve is initially unchanged. Treat the conversion of unused buildings as a separate later supply response.

The market for electric-vehicle charging in Eland

Read the extracts and answer the questions that follow.

Text A — More electric vehicles

1. The number of electric vehicles increased rapidly, shifting demand for charging sessions to the right. Higher charging prices signalled that charging facilities had become relatively scarce.

2. Energy companies responded by installing new chargers. The market’s signalling function therefore contributed to a larger equilibrium quantity.

Text B — Combined market gains

1. Economists use social surplus to measure the combined gains received by charging consumers and suppliers. They argue that it is maximized at competitive equilibrium.

2. Drivers appreciate the expansion in charging capacity but report that prices can be high while new chargers are being installed. The supply response may therefore involve a considerable time lag.

Table 1 — Charging market at a price of 12 elars per session

Charging market quantities at a price of 12 elars per session.

Table 2 — Equilibrium quantity before and after new chargers were installed

Equilibrium quantity of charging sessions before and after new chargers were installed.

The market for cut flowers in Floriana

Read the extracts and answer the questions that follow.

Text A — A festival and improved greenhouses

1. A national festival increased demand for cut flowers. At the same time, improved greenhouse technology increased supply. Both changes increased the quantity of flowers traded, but their combined effect on price depended on the relative sizes of the shifts.

2. Flower growers were given an incentive to expand output when prices and expected returns increased.

Text B — Market efficiency

1. Economists describe an outcome as allocative efficiency when social surplus is maximized and marginal benefit equals marginal cost.

2. Flower sellers value rapid price adjustment because flowers are perishable. Consumers note that festival prices can still become high if demand increases more than supply.

Table 1 — Flower market at a price of 5 florins per bunch

Flower market quantities at a price of 5 florins per bunch.

Table 2 — Equilibrium quantity before and after the festival and technology changes

Equilibrium quantity of cut flowers before and after the festival and greenhouse technology changes.

The bottled-water market in Aridia

Read the extracts and answer the questions that follow.

Text A — Hot weather and production

1. A prolonged period of hot weather increased demand for bottled water. Prices rose, encouraging bottling firms to increase output and attracting workers and delivery vehicles from other industries.

2. This illustrates the price mechanism, through which prices coordinate decentralized decisions and alter the allocation of resources.

Text B — Resources and market welfare

1. The movement of labour and capital into bottling is an example of resource allocation. Later, new filling equipment increased supply and reduced the market price.

2. Supporters argue that flexible prices remove shortages and maximize social surplus. Consumer groups argue that rationing by willingness and ability to pay can disadvantage households with low incomes during very hot weather.

Table 1 — Bottled-water market at a price of 2 arids per bottle

Bottled-water market quantities at a given price in Aridia.

Table 2 — Equilibrium quantity before and after new filling equipment

Equilibrium quantity of bottled water before and after new filling equipment was installed.

Rice market in Costaguana

Rice is a staple food in Costaguana. Before severe flooding, the competitive rice market was in equilibrium. Flood damage increased the minimum price at which farms could profitably supply rice. The government is considering investment in flood-resistant storage, drainage and transport infrastructure, which is expected to reduce production and distribution costs.

For this question, $S_1$ denotes the pre-flood supply situation, $S_2$ denotes the post-flood supply situation, and $S_3$ denotes the expected supply situation after the infrastructure investment.

Table 1 presents three linear market situations. Quantities are measured in millions of kilograms per month.

Table 1: Rice-market data

Rice-market prices and quantities for demand and three linear supply situations. Quantities are measured in millions of kilograms per month.

Electric scooter market in Montara

A rise in urban congestion increased demand for electric scooters in Montara. During the same period, improved battery-production methods reduced producers' costs and increased supply. Table 1 shows the initial and new linear demand and supply curves. Quantities are measured in thousands of scooters per year.

Table 1: Electric scooter demand and supply

Electric scooter demand and supply schedules in Montara.

The government is considering funding technical training and shared battery-testing facilities to support further productivity improvements among scooter producers.

Coffee market in Esperanza

Coffee farms in Esperanza experienced a prolonged drought, which reduced supply. At the same time, some consumers changed their preferences towards tea, reducing demand for coffee. The two changes occurred over the same year.

Table 1 shows the initial and new linear demand and supply curves. Quantities in the table are floored at zero, so the table shows only the non-negative portions of the linear curves. Quantities are measured in thousands of kilograms per month.

Table 1: Coffee demand and supply

Coffee demand and supply schedules in Esperanza before and after the drought and preference change.

The government is considering funding shared irrigation systems and drought-resistant coffee plants to help farms restore supply.

Construction timber market in Norland

Reconstruction following a major storm increased demand for construction timber in Norland. At the same time, new sawmill technology reduced production costs and increased supply. Table 1 shows the initial and new linear demand and supply curves. Quantities are measured in thousands of cubic metres per month.

Table 1: Construction timber market

Construction timber demand and supply schedules before and after reconstruction-related changes.

The government is considering accelerating technical certification for sawmill workers and coordinating shared rail freight services to increase timber supply during reconstruction.