Demand, Supply and Elasticity

A sportswear brand's sales of a particular trainer style jump sharply after a popular streaming show's lead character is seen wearing them — with no change in the trainer's own price, consumer incomes, or any rival's price. Which demand factor best explains this shift?

• AMarketing/advertising/branding

  The brand didn't pay for or control this exposure — it's an unplanned change in what's fashionable, not a marketing campaign the business itself ran. The two factors sit next to each other on the spec but describe genuinely different causes.

• Fashions, tastes and preferences

  Correct. Consumer preference shifted toward this specific style for a reason entirely outside the brand's own price, income levels, marketing spend, or any competitor's price — exactly what the fashions/tastes/preferences factor covers.

• CConsumer incomes

  Nothing in the scenario describes any change to how much money consumers have — only a shift in what they now prefer to spend it on.

• DDemographics

  Demographics describes changes in the size or composition of the population itself (age structure, population growth) — this scenario describes a preference shift within the same population, not a change in who that population is.

Traps tested: Confuses marketing and fashion · Wrong concept entirely · Confuses demographics and tastes

A furniture manufacturer's cost of imported timber rises sharply after a new import tariff takes effect. At every price, the firm is now willing to supply fewer units than before. Which one of the following correctly classifies this change?

• A shift of the supply curve, caused by a rise in the cost of production

  Correct. A tariff on an imported input raises the cost of producing each unit — exactly the 'costs of production' supply factor — so the whole supply curve shifts left, since less is now worth supplying at every price.

• BA shift of the demand curve, caused by an indirect tax

  This mislabels both the curve and the factor. The tariff raises the FIRM's own cost of producing furniture — a supply-side change — not anything affecting what customers are willing and able to pay, which is what would shift demand instead.

• CA movement along the supply curve, caused by the tariff

  A movement along the curve is caused only by a change in the good's OWN price. Furniture's price hasn't moved yet in this scenario — the underlying willingness to supply at every price has changed instead, which is a shift, not a movement.

• DA shift of the demand curve, caused by a change in consumer tastes

  Nothing in the scenario describes a change in what consumers want — the tariff changes the manufacturer's own costs, a supply-side fact entirely separate from consumer preference.

Traps tested: Supply vs demand factor confusion · Movement vs shift confusion

The price of rice rises sharply. In the separate market for pasta — a substitute good — with pasta's own price, production costs and technology all unchanged, what happens?

• AThere is a movement along the pasta demand curve, since pasta's own price hasn't changed

  A movement along the curve only happens when the good's OWN price changes. Here it's rice's price that changed, and rice is a different good — that shifts pasta's ENTIRE demand curve, it doesn't trace a new point along the existing one.

• BThe pasta supply curve shifts right, since more pasta is now needed to replace rice

  Nothing about pasta's own production costs, technology, or number of producers has changed — this is a demand-side story (what shoppers want to buy), not a supply-side one (what producers are willing to sell).

• The pasta demand curve shifts right; both the equilibrium price and quantity of pasta rise

  Correct. Rice becoming pricier makes pasta relatively cheaper by comparison, so some shoppers switch — pasta's demand curve shifts right. With pasta's supply curve unchanged, a rightward demand shift raises both the equilibrium price and the equilibrium quantity.

• DThe pasta demand curve shifts left, since rice is now the cheaper staple

  This reverses the direction. Rice getting MORE expensive is what makes pasta look relatively cheaper by comparison — that pulls demand for pasta right, toward the now-comparatively-better-value substitute, not away from it.

Traps tested: Movement vs shift confusion · Supply vs demand factor confusion · Direction reversed

A phone-accessory brand raises the price of its bestselling case from £12 to £15. Weekly sales fall from 800 to 680 units. What is the price elasticity of demand?

• A−1.67

  This is the formula inverted — %ΔP ÷ %ΔQd (25 ÷ −15) instead of %ΔQd ÷ %ΔP. PED is always the percentage change in quantity divided by the percentage change in price, never the other way round.

• B0.6

  The division is right but the negative sign has been dropped — price rose and quantity fell, opposite directions, so PED must be negative; the Jun 2019 mark scheme confirms this exact sign is worth its own mark on its own — the correct answer −2.5 earns 4 marks, but the same figure without the sign, 2.5, earns only 3.

• C−60%

  PED is a ratio of two percentages, so the % symbols cancel — the value is a pure number, −0.6, never written with a percent sign attached.

• −0.6

  Correct. %ΔP = (15−12)÷12×100 = +25%. %ΔQd = (680−800)÷800×100 = −15%. PED = −15 ÷ 25 = −0.6 — inelastic, since its magnitude is below 1.

Traps tested: Formula inverted · Missing negative sign · Percent sign on a ratio

A budget ready-meal brand tracks its sales through a period when average household income rises by 5%. Demand for the brand's meals falls by 3% over the same period. What does this measure, and what does it show?

• AYED = 0.6 — the meals are a necessity

  The sign has been dropped: income rose and demand FELL — opposite directions — so YED must be negative. A positive YED (necessity or luxury) requires demand to rise alongside income, which isn't what happened here.

• BYED = −1.67 — the meals are strongly inferior

  This is the formula inverted (%ΔY ÷ %ΔQd = 5 ÷ −3, instead of %ΔQd ÷ %ΔY). YED, like PED, is always the % change in quantity divided by the % change in the OTHER variable, never flipped.

• YED = −0.6 — the meals are an inferior good

  Correct. YED = %ΔQd ÷ %ΔY = −3 ÷ 5 = −0.6. Negative YED means quantity demanded falls as income rises — the defining test for an inferior good, exactly what a budget ready-meal range would be expected to show as shoppers trade up when they can afford to.

• DPED = −0.6 — the meals are price inelastic

  This mislabels an income-driven change as a price-driven one. Nothing in the scenario describes the meals' own price changing — the cause here is income, so YED is the correct measure, not PED.

Traps tested: Missing negative sign · Formula inverted · Confuses ped and yed

A budget airline's short-haul route currently sells 2,000 seats a week at £80. It raises the price to £84 (a 5% rise), and weekly bookings fall to 1,820 (a 9% fall). Separately, the airline's finance team knows the route has consistently high price elasticity of demand, because passengers can easily switch to a rival's near-identical route.

Using the figures given, which of the following is the most complete assessment of the price rise's effect on the route's revenue, and what the airline should do next?

• APED ≈ −0.56 (inelastic) — the price rise raised revenue, and the airline should raise price again

  This comes from inverting the formula — %ΔP÷%ΔQd (5÷−9 ≈ −0.56) instead of %ΔQd÷%ΔP. The correct division gives PED = −9÷5 = −1.8, and |−1.8| is above 1, which is elastic, not inelastic — inverting the formula flips both the number and the classification, and with it the entire recommendation that follows.

• PED = −1.8 (elastic) — revenue fell from £160,000 to £152,880, so the price rise was the wrong call; a price CUT is what the elasticity actually predicts would raise revenue

  Correct. PED = −9 ÷ 5 = −1.8, above 1 in magnitude, so demand is elastic. Revenue before: 2,000×£80=£160,000; after: 1,820×£84=£152,880 — a fall, exactly what elastic demand predicts for a price rise. The airline's own knowledge that passengers can easily switch to a rival is the real-world reason PED is elastic here, and the pricing recommendation follows directly: only a price CUT raises revenue when demand is elastic.

• CPED = −1.8 (elastic) — revenue rose, so the price rise was the right call

  The PED figure is right, but the revenue direction is stated backwards: elastic demand means a price RISE loses revenue, not gains it, and the actual arithmetic here (£160,000 → £152,880) confirms a fall, not a rise.

• DThere isn't enough information to assess the price rise without knowing the airline's costs

  Total revenue depends only on price and quantity (TR=P×Q) — costs would matter for a PROFIT decision, but the question only asks about revenue, and the two given figures (5% price rise, 9% booking fall) are exactly what's needed to answer that.

Traps tested: Formula inverted · Direction reversed · Overclaims uncertainty

A premium luggage brand tracks its sales through a period when average household income rises by 4%. Demand for its cases rises by 12% over the same period. What does this measure, and what does it show?

• AYED = 0.33 — the cases are a necessity

  This inverts the formula — %ΔY÷%ΔQd (4÷12) instead of %ΔQd÷%ΔY. YED, like PED, is always the % change in quantity divided by the % change in the OTHER variable, never flipped.

• BYED = 3 — the cases are an inferior good

  The division is right but the classification is backwards. A POSITIVE YED means demand rises alongside income — the defining test for a normal good (and specifically a luxury here, since it's above 1). Inferior requires a NEGATIVE YED, demand falling as income rises, which isn't what happened.

• CYED = 300% — the cases are a luxury good

  YED is a ratio of two percentages, so the % symbols cancel — the value is a pure number, 3, never written with a percent sign attached.

• YED = 3 — the cases are a luxury good

  Correct. YED = %ΔQd ÷ %ΔY = 12 ÷ 4 = 3. Positive (demand rises as income rises, a normal good) and above 1 (demand rises MORE than proportionally to income) — exactly the definition of a luxury good, and a genuinely different real-world classification from the inferior ready-meal example above even though both use the identical formula and division.

Traps tested: Formula inverted · Sign meaning reversed · Percent sign on a ratio

A homeware brand has already measured YED for its flagship product line at 0.6. Economists forecast that average household income will rise by 5% next year. Using this measured YED, what percentage change in demand should the business plan for?

• A8.33% — divide the forecast income change by the measured YED (5 ÷ 0.6)

  This inverts the relationship. YED is defined as %ΔQd÷%ΔY, so finding %ΔQd from an already-known YED means MULTIPLYING by %ΔY, not dividing by it — dividing answers a different question entirely.

• B5.6% — add the YED value to the forecast percentage change in income (0.6 + 5)

  YED is a ratio, not a percentage in its own right, so it can't be added to a percentage change the way two percentage figures could be added together. The relationship between the three quantities is multiplicative (%ΔQd = YED × %ΔY), not additive.

• C0.6% — the measured YED value itself is the forecast percentage change in demand

  This mistakes the elasticity value (a ratio describing how demand responds to income) for the answer itself. YED alone doesn't say how much demand will change — it has to be applied to the SIZE of the actual forecast income change.

• 3% — multiply the measured YED by the forecast percentage change in income (0.6 × 5)

  Correct — this is the same formula run in reverse: since YED = %ΔQd ÷ %ΔY, rearranging gives %ΔQd = YED × %ΔY = 0.6 × 5 = 3%. A business that already knows its own YED can use it to FORECAST demand from any future income change, not only to describe a change that's already happened — a genuinely different direction from the coffee/streaming/phone-case/luggage calculations above, which all go the other way: from raw sales data to the elasticity value, not from a known elasticity to a forecast.

Traps tested: Operation inverted · Treats ratio as percentage · Confuses elasticity with outcome

New automated harvesting equipment cuts a coffee-bean cooperative's cost of production, shifting the supply curve for coffee beans right — with demand for coffee beans unchanged. What happens to the equilibrium price and quantity of coffee beans?

• ABoth equilibrium price and quantity rise

  That's the outcome for a RIGHTWARD DEMAND shift (more buyers chasing the same supply curve), not a supply shift. A rightward supply shift is the mirror image — it pulls price DOWN, not up.

• BEquilibrium price rises and equilibrium quantity falls

  This is the outcome of supply shifting LEFT (a cost RISE), not right. A fall in the cost of production makes more worth producing at every price, shifting supply right — the opposite direction to this answer's premise.

• Equilibrium price falls and equilibrium quantity rises

  Correct. With demand unchanged, a rightward supply shift means more is offered at every price — sellers now undercut the old equilibrium price, and buyers respond to the lower price by demanding more, so price falls and quantity rises together. This is the exact equilibrium outcome a real construct-and-interpret exam question tested for a rightward supply shift.

• DBoth equilibrium price and quantity fall

  Quantity doesn't fall here — more is being supplied at every price, and demand is unchanged, so the new equilibrium quantity is higher than before, not lower.

Traps tested: Demand shift pattern applied to supply · Direction reversed · Wrong concept entirely