Exam Skills

Changes in demand and supply

*For Sections 4.2, 4.4 and 4.5 of NSS Exploring Economics 1

(3rd Edition)
1
Related skills
1. Identify the relationship between two goods
2. Explain the changes in price and quantity, or sup
ply and demand
3. Determine the new equilibrium point

2
1. Identify the relationship between t
wo goods
The demand for _______ can be regarded as a deriv
ed demand of ________.
A. furniture … wood
B. bread … butter
C. pork … pork bones
D. orange … orange juice

Question analysis:
Students should notice the differences between
derived demand and complementary demand.

3
1. Identify the relationship between t
wo goods
The demand for _______ can be regarded as a
derived demand of ________.
A. furniture … wood
B. bread … butter
C. pork … pork bones
D. orange … orange juice

Derived demand: The demand for factors of

production is a derived demand of their output.
Option A: The demand for wood is a derived demand
of furniture.
Option D is correct.
4
1. Identify the relationship between t
wo goods
The demand for _______ can be regarded as a
derived demand of ________.
A. furniture … wood
B. bread … butter
C. pork … pork bones
D. orange … orange juice

Complementary demand: Two goods are used

together to satisfy a particular want.
Option B: Bread and butter are in complementary
demand.

5
1. Identify the relationship between t
wo goods
The demand for _______ can be regarded as a deriv
ed demand of ________.
A. furniture … wood
B. bread … butter
C. pork … pork bones
D. orange … orange juice

Option C: Pork is not a factor of production of pork

bones. They are in joint supply instead.

6
2. Explain the changes in price and q
uantity, or supply and demand
Which of the following can explain the decrease in price a
nd the increase in quantity transacted of desktop compute
rs?
A. More people want to buy desktop computers.
B. Many desktop computer manufacturers go bankrupt
because of a financial crisis.
C. More people use tablets instead of computers.
D. There is a technology breakthrough in making
desktop computers.
Skill:
In doing this kind of MC question, a safer method is to
try the options one by one.

7
2. Explain the changes in price and q
uantity, or supply and demand
Which of the following can explain the decrease in price a
nd the increase in quantity transacted of desktop compute
rs?
A. More people want to buy desktop computers. Demand 
B. Many desktop computer manufacturers go bankrupt
because of a financial crisis. Supply 
C. More people use tablets instead of computers. Demand
D. There is a technology breakthrough in making 
desktop computers. Supply 
Explanations:
Given P and Q change in an opposite direction.
 Supply changes.
Given Q   Supply 
8
2. Explain the changes in price and q
uantity, or supply and demand
Which of the following can explain the decrease in price a
nd the increase in quantity transacted of desktop compute
rs?
A. More people want to buy desktop computers.
B. Many desktop computer manufacturers go bankrupt
because of a financial crisis.
C. More people use tablets instead of computers.
D. There is a technology breakthrough in making
desktop computers.

9
3. Determine the new equilibrium point
(I)
The following diagram shows the market for vegetabl
es in Hong Kong. The initial equilibrium point is E0.

Price ($)
S2

E1 S0
S1
E4 E0 E2

E3
D1
D0
D2
0 Quantity

10
3. Determine the new equilibrium point
(I)
Suppose more people eat green and a storm has cau
sed damage to many vegetable farms. The new equili
brium point will be ____.
Price ($)
S2

E1 S0
S1
E4 E0 E2

E3
D1
D0
D2
0 Quantity

A. E1 B. E2 C. E3 D. E4

11
3. Determine the new equilibrium point
(I)
Skill:
Step 1: How will the demand and supply be affected
by the scenario in the question?
Step 2: What will the corresponding shift of the
curves be?
 More people eating green implies an increase
in demand for vegetables. (Step 1)
The demand curve will shift rightwards. (Step 2)
 The damage to vegetable farms implies a
decrease in the supply of vegetables. (Step 1)
The supply curve will shift leftwards. (Step 2)

12
3. Determine the new equilibrium point
(I)
Suppose more people eat green and a storm has cau
sed damage to many vegetable farms. The new equili
brium point will be ____.
Price ($)
S2

E1 S0
S1
E4 E0 E2

E3
D1
D0
D2
0 Quantity

A. E1 B. E2 C. E3 D. E4

13
3. Determine the new equilibrium point
(II)
WITHOUT the aid of a diagram, explain how the
decrease in the price of ebooks will affect the price of
printed books.
Skill:
Although you are not required to draw a supply-demand
diagram, you can sketch the diagram on rough paper to
help you answer this question.
You should analyse how demand and supply will be
affected and how the demand and supply curves
will shift. [Same as part (I) on slide 13]
(Ebooks and printed books are keywords.)

14
3. Determine the new equilibrium point
(II)
Suggested answers:
Ebooks and printed books are substitutes. When
the price of ebooks decreases, the demand for
printed books will decrease.
Price ($)
S Reminder:
You are not required
P0
to draw the diagram in
P1 your answer book.
D0
D1
0 Quantity

The price of printed books will decrease.

15
3. Determine the new equilibrium point
(II)
Reminder:
The skill is the same even if you are required to
draw a diagram.
Remember to show the changes in price and
quantity in the diagram according to what the
question asks.

16
3. Determine the new equilibrium point
(III)
(Advanced)
Due to a technological advance, factories in the US
start using a lot of robots to manufacture cars. At the
same time, oil prices decrease steadily.
With the aid of a diagram, explain whether the price
of cars in the US market will necessarily decrease.
Skill:
You should analyse how demand and supply will be
affected and how the demand and supply curves
will shift. [Same as part (I) on slide 13]
However, note that when both demand and supply
changes, the changes in price and quantity may be
uncertain.

17
3. Determine the new equilibrium point
(III)
(Advanced)
Due to a technological advance, factories in the US
start using a lot of robots to manufacture cars. At the
same time, oil prices decrease steadily.
With the aid of a diagram, explain whether the price
of cars in the US market will necessarily decrease.
Question analysis:
Technological advance  Supply of cars 
Oil prices decrease  Demand for cars 
 P may increase, decrease or remain unchanged.

18
3. Determine the new equilibrium point
(III)
(Advanced)
Due to a technological advance, factories in the US
start using a lot of robots to manufacture cars. At the
same time, oil prices decrease steadily.
With the aid of a diagram, explain whether the price
of cars in the US market will necessarily decrease.
Suggested answers:
The technological advance will lower the cost of
production and increase the supply of cars.
When oil prices decrease, the cost of driving a car
decreases. Hence, the demand for cars increases.
However, the price will increase if the increase in
demand is greater than the increase in supply.

19
3. Determine the new equilibrium point
(III)
(Advanced)
Due to a technological advance, factories in the US
start using a lot of robots to manufacture cars. At the
same time, oil prices decrease steadily.
With the aid of a diagram, explain whether the price
of cars in the US market will necessarily decrease.
Suggested answers:
Price ($)
S0
S1
P1
P0

D1
D0
0 Quantity
Q0 Q1
20