Worksheet 7

2.3 Competitive Market Equilibrium (1)

1) Complete the paragraph below by using the correct words in the box below (not all the words are
applicable, however). [4 marks]
The change in a ……….. of demand or supply will lead to a disequilibrium in the market at the initial
equilibrium price and quantity. As a result, the market will experience either ……….. or ……….. which
will force ……….. to change until the market clears at the new equilibrium price and quantity.

Excess demand Excess supply Non-price determinant Price

Price factors Quantity Shortage Surplus

2) The diagram below shows the market for steak. Steak is considered as a normal good. The original
market equilibrium is at point X. Suppose the economy is expanding and general household income
level has risen by 20%.

a) Define the term normal good. [2 marks]

……………………………………………………………………

……………………………………………………………………

……………………………………………………………………

b) Explain the impact of the above changes on the

market equilibrium, consumer surplus and producer
surplus. [3 marks]

……………………………………………………………………

……………………………………………………………………

……………………………………………………………………

3) Complete the paragraph below by using the correct words in the box below (not all the words are
applicable, however). [5 marks]
The function of the price mechanism aims to allocate ……….. resources. Suppose that the supply curve
shifts to the right as a result of a lower cost of production for the market of chocolates. At the original
equilibrium level of price and quantity, there is ……….. which ……….. to the chocolate producers that
there is too much stock (inventory) in storage. Hence, there is a(n) ……….. for the chocolate producers
to lower their prices to get rid of their chocolates. Ultimately, the fall in prices helps to ……….. the
output level to the new equilibrium quantity of chocolates but at a lower price.

Abundant Alerts Decrease Excess demand Excess supply

Incentive Increase Less incentive Ration Scarce Signals

4) Which of the following statements does not support why a competitive market is allocatively efficient at
the market equilibrium? [1 mark]

(A) This is because social (community) surplus is maximized

(B) Resources are allocated in such a way that the right amount of a particular good or service is
produced and consumed
(C) There is no excess supply or excess demand in the market
(D) The value a consumer places on the consumption of an additional unit of a good or service is
less than the value of the resources used to produce the product

5) Which of the following occurs when there is an increase in the difference between the actual price a firm
receives and the price that it is willing and able to charge? [1 mark]

(A) Social (community) surplus is maximized

(B) Producer surplus increases
(C) Consumer surplus increases
(D) There is no change to the social (community) surplus

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 Worksheet 8
2.3 Competitive Market Equilibrium (2)

Refer to the following diagram for the market of a video game called LOL, and answer the
questions that follow.

1) Identify the market equilibrium price and quantity. [1 mark]

…………………………………………………………………………………………………………..………

2) State another term that is synonymous with market equilibrium price. [1 mark]

…………………………………………………………..………………………………………………………

3) As a result of a viral advertising campaign, the demand for the LOL video game
has risen. Describe the impact of this on the market equilibrium price. [2 marks]

…………………………………………..………………………………………………………………………

………………………………………………..…………………………………………………………………

4) Quantify the shortage following the increase in demand (in Question 3) if the [1 mark]
price remains at $40.

…………………………………………………………………………………………..………………………

5) With reference to the price mechanism, explain how the increase in price of the
video game price from $40 to $60 works to reallocate resources in this market. [4 marks]

…………………………………..………………………………………………………………………………

……………………………………..……………………………………………………………………………

……………………………………..……………………………………………………………………………

………………………………………..…………………………………………………………………………

…………………………………………..………………………………………………………………………

6) Describe the impact on the producer surplus as a result of the increase in

demand for the video game producer. [2 marks]

…………………………..………………………………………………………………………………………

…………………………..………………………………………………………………………………………
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 Worksheet 9
2.3 Competitive Market Equilibrium (HL Only)

1) The following diagram shows the market for rice in Thailand. Answer the
questions that follow. From the diagram, identify the following: [14 marks]
(a) One possible supply factor which
could have led to the increase in
supply in the market for rice.

Factor:
……………………………………………

(b) Axis Label 1: …………………………...

Axis Label 2: …………………………...

(c) Original market equilibrium:

……………………….………

(d) New market equilibrium:

……………………….………

(e) Complete the table to indicate the (areas showing) consumer surplus from the diagram.

Before supply shock After supply shock Change?

Increase or
Consumer surplus
decrease?

(f) Following the change in supply, how does the producer surplus change? ……………….……

(g) What occurs at PE following the increase in supply? ……………………………..

(h) At the original demand and supply, the marginal benefit (MB) is greater than the marginal
cost (MC) at Point ……… and Point ……… .

(i) At the original demand and supply, the marginal cost (MC) is greater than the marginal
benefit (MB) at Point ……… and Point ……… .

2) Define the term marginal benefit. [2 marks]

…………………………………………………………………………………………………..………………

………………………………………………………………………………………………..…………………

3) Using the labels provided in the diagram above and the terms marginal benefit
(MB) and marginal cost (MC), explain why allocative efficiency is achieved at
the market equilibrium price and quantity. [4 marks]
……………………………..……………………………………………………………………………………
………………………..…………………………………………………………………………………………
………………………..…………………………………………………………………………………………
…………………………..………………………………………………………………………………………

…………………………..………………………………………………………………………………………

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