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8 marksMarket Equilibrium

CAPE Economics Unit 1 · 2009 · Paper 2 · Question 1(a)(ii)c)

Section I consists of questions on market equilibrium and supply.

Explain the effect on equilibrium of a fall in the demand for the commodity using a demand and supply diagram.

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Other parts of this question

  1. 1(a)(i)Define the term 'market'.[2 marks]
  2. 1(a)(ii)a)Using a demand and supply diagram, explain how the market allocates scarce resources in equilibrium.[8 marks]
  3. 1(a)(ii)b)Using the demand and supply diagram, explain how the market allocates scarce resources in disequilibrium.[8 marks]
  4. 1(b)(i)With reference to the market for milk, explain the economic effect of an effective price floor.[6 marks]
  5. 1(b)(ii)Explain how an effective price floor leads to inefficient resource allocation.[12 marks]
  6. 1(c)Justify governments' use of price floors despite their negative effects.[6 marks]

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