Question 1
In the diagram, S1 is the original supply curve and D is the original demand curve. If supply shifts to S2, which area represents the change in consumer surplus?
Answer: A.
Explanation:
- Consumer surplus is the area between the price that consumers are willing to pay (D curve) and the actual price (P). When supply shifts from S1 to S2, the new equilibrium price will decrease from P to P2, leading to a lower price for consumers.
- The change in consumer surplus after the shift in supply can be calculated by comparing the original consumer surplus (triangle above P and under D) and the new consumer surplus after the shift (triangle above P2 and under D).
- In the given options, area PQVT represents the change in consumer surplus after the shift in supply from S1 to S2. This area captures the decrease in consumer surplus due to the decrease in price (from P to P2) resulting from the increase in supply.
- Choice B (PQW) does not represent the change in consumer surplus accurately after the shift in supply. It only captures a portion of the original consumer surplus and does not account for the full decrease in consumer surplus due to the shift.
- Choices C (PRVT) and D (TVW) are also incorrect as they do not accurately represent the change in consumer surplus after the shift in supply.
- The correct area to represent the change in consumer surplus must consider the overall decrease in consumer surplus resulting from the decrease in price caused by the increase in supply.
What this practice covers
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. Each one is marked the moment you pick, the correct option is shown whether or not you found it, and the full explanation opens either way. No account needed to answer them.
These questions are drawn from past CIE 9708 papers and filtered to the interaction of demand and supply. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on the interaction of demand and supply, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Equilibrium means socially desirable. Wrong. Equilibrium only means quantity demanded equals quantity supplied.
- A shortage is shown by a vertical gap. Wrong. Shortages and surpluses are measured horizontally between quantities at a given price.
- A price below equilibrium creates a surplus. Wrong. It creates a shortage.
- A price above equilibrium creates a shortage. Wrong. It creates a surplus.
- An increase in demand means movement along demand. Wrong. It is a rightward shift of the demand curve.
- Increased supply raises equilibrium price. Wrong, ceteris paribus: price falls and quantity rises.
- Simultaneous shifts always give a definite price and quantity result. Wrong. One result may be ambiguous.
- Joint demand means substitutes. Wrong. Joint demand refers to complements.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: The Interaction of Demand and Supply revision notes.