Marlborough Boys’ College 2014
Pride Responsible Involved Respectful
NAME
CLASS
Level 1 Economics, 2014
90986 Demonstrate understanding of how consumer, producer
and/or government choices affect society, using market
equilibrium
Credits: Five
Achievement
 Demonstrate understanding
of how consumer, producer
and/or government choices
affect society, using market
equilibrium.
Achievement with Merit
 Demonstrate in-depth
understanding of how
consumer, producer and/or
government choices affect
society, using market
equilibrium.
Achievement with Excellence
 Demonstrate comprehensive
understanding of how
consumer, producer and/or
government choices affect
society, using market
equilibrium.
You should answer all questions in this booklet.
If you need more space for any answer, use the page(s) provided at the back of this booklet and clearly
number the question.
Check that this booklet has pages 1 – 11 in the correct order and that none of these pages is blank.
YOU MUST HAND THIS BOOKLET TO THE SUPERVISOR AT THE END OF THE EXAMINATION
Total
Prelims August 25th
1
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
Pride Responsible Involved Respectful
Assessors use only
Prelims August 25th
2
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
Pride Responsible Involved Respectful
Assessor
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Suggested time 60 minutes
QUESTION ONE: MARKET EQUILIBRIUM
Strawberries are a very seasonal fruit which are only available through the summer and
become very popular around Christmas time.
New Zealand Market for Strawberries (per day)
Price $ per box
Market Supply
Market Demand
2.50
4,000
7,000
3.00
5,000
5,000
3.50
6,000
3,000
4.00
7,000
2,000
Complete (a) – (c) to fully explain market equilibrium in the context of strawberries.
a) Use the information in the table above to:
 Complete the market graph below.
 label the market equilibrium price (Pe) and equilibrium quantity (Qe)
New Zealand Strawberry Market
Price ($/box)
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
0
1000
2000
3000
4000
5000
6000
7000
8000
Quantity (boxes)
Prelims August 25th
3
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
Pride Responsible Involved Respectful
Assessor use
only
b) On the graph you drew in question (a) show the market situation that exists at a price of $3.50.
You must:
 Use dotted lines to show the quantity demanded (label Qd)
 Use dotted lines to show the quantity supplied (label Qs)
 Fully label any shortage or surplus.
c) Fully explain how the free market would react to this situation:
In your answer, you should:
 Refer to the graph and data from the previous page
 Explain the change in market price
 Explain the change in quantity demanded and quantity supplied
Prelims August 25th
4
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
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Assessor
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QUESTION TWO: MARKET CHANGES
In the days just before Christmas strawberries become very popular as they are a traditional dessert
for Christmas celebrations.
Fully explain the impact of Christmas on the New Zealand market for strawberries.
You must:
 Label the original equilibrium price (Pe) and equilibrium quantity (Qe) on the graph below
 Shift the supply and/or demand curve accordingly
 Label the new price (P1) and quantity (Q1)
 Refer to the graph
 Explain the effect of the change in the price on the quantity supplied
 Explain the benefit this change in the market will have on the suppliers
New Zealand Strawberry Market
Price
($/box)
S
D
Quantity (boxes)
Prelims August 25th
5
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
Pride Responsible Involved Respectful
Assessor
use only
Prelims August 25th
6
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
Pride Responsible Involved Respectful
Assessor
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QUESTION THREE: MAXIMUM PRICE
Often the public question the large increases in price that occur in the strawberry market and argue
that the government should regulate the market by enforcing a maximum price for strawberries.
The graph below shows the effects of a maximum price of $2.50 imposed on the strawberry
market.
Price ($/box)
New Zealand Strawberry Market Week before Xmas
5
S
4.5
4
3.5
3
Pmax 2.5
2
D
1.5
1
0.5
0
0
1000
2000
3000
4000
5000
6000
7000
8000
Quantity (boxes)
Complete questions (a) and (b) to fully explain the effect of introducing a maximum price control on
the NZ Strawberry Market.
a) On the market for strawberries above, show the changes to quantity demanded and supplied as a
result of the maximum price.
You must:
 Use dotted lines to show the equilibrium price (Pe) and quantity (Qe) before the maximum
price
 Use dotted lines to show the new quantity demanded by consumers after the maximum
price. Label Qd
 Use dotted lines to show the new quantity supplied by kiwifruit growers after the maximum
price. Label Qs
 fully label the resulting surplus or shortage.
Prelims August 25th
7
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
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b) Fully explain the effects of introducing the maximum price on strawberry consumers
In your answer you should
 Refer to the graph
 Explain the change in price
 Explain the change in quantity demanded
 Explain the change in consumer spending on strawberries
 Explain TWO flow on effects of the maximum price
Prelims August 25th
8
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
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Assessor
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QUESTION FOUR: SUBSIDY
Another solution to ensuring there is a good supply of strawberries at a reasonable price is for the
government to provide a subsidy to the strawberry industry. The government is also considering the
additional health benefits of increased strawberry consumption in general.
Complete questions (a) - (c) to fully explain the effect of a subsidy on different sectors of the New
Zealand economy.
a) On the graph below show the effect of a $1.50 subsidy per box.
You must use dotted lines to show:
 The show the original equilibrium. Label this price and quantity as Pe and Qe.
 The new equilibrium price P1
 The new equilibrium quantity Q1.
New Zealand Strawberry Market Week before Xmas
Price
($/boxes)
5
S
4.5
4
3.5
3
2.5
2
D
1.5
1
0.5
0
0
1000
2000
3000
4000
5000
6000
7000
8000
Quantity (boxes)
Prelims August 25th
9
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
Pride Responsible Involved Respectful
Assessor
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b) Referring to the graph on the previous page identify and calculate the:

Quantity of strawberries consumers buy before and after the subsidy
Before:

(boxes)
After: $
Price received by producers before and after the subsidy
Before: $

After:
Price paid by consumers before and after the subsidy
Before: $

(boxes)
After: $
Total cost of the subsidy to the government. (Show working)
$
Space for working
Prelims August 25th
10
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
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c) Fully explain how a subsidy on strawberries might affect different sectors of the economy
In your answer you should:
 Refer to the graph on page 8
 Explain the change in price to consumers and the effect on consumer spending on
strawberries
 Explain the change in price to sellers and the effect on sellers revenue
 Explain the effect on the government in the immediate or short-run period
 Explain ONE possible long-term benefit for the government
Prelims August 25th
11
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
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Extra paper for continuation of answers if required.
Clearly number the question
Question
Number
Prelims August 25th
12
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.
Marlborough Boys’ College 2014
Prelims August 25th
Pride Responsible Involved Respectful
13
© NZCETA 2014 Economics Level 1 CETA Exam AS 90986 (1.4)
NZCETA has approval from NZQA to use their materials in the development of this resource.