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Answers to Pop quizzes and other questions
Section 1.1 – markets (Chapters 4 – 8)
Note that the answers below are my own and have no links to ‘official’ IB exam questions. I have not
included the questions for the simple reason that one might reasonably assume that you have a copy of
the book – and I am simply not interested in providing free-riders with material. I have left these
answers ‘unlocked’ in that you may print them out and re-vamp them to your needs. Again, feel free
to write me with comments and/or questions at [email protected]
S1.1 Ch 4
HL extension on the demand function
Page 35
Pop Quiz 4.1
1. i) to iii) are moot.
2. Error: the five prices should go from $100 to zero! Stick in each price value into the Dfunction:
Price
Qd
100
0
75
50
50
100
25
0
150
200
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3. Plotting out the demand curve using the values in the above table:
P ($/unit)
100
Qd = 200 - 2P
75
50
25
D
0
50
100
150
200
Q/t
4. Again, a bit of an error; the question should read “…20% change in autonomous
demand…but no change in slope…” A decrease in the price of a substitute will decrease
demand for this good. The new Q-intercept is thus 160 (200 * 0.8) and the new D-function is
Qd = 160 – 2p. Putting this in a table and diagram…
Price
Qd
80
0
60
40
40
80
20
0
120
160
Note that we get a new price intercept of $80. (This is given by dividing ‘a’ with ‘b’, i.e. 160/2.) The
shift in the demand curve tells us that the quantity demanded has decreased by 40 units at all price
levels – which is termed a decrease in demand.
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P ($/unit)
100
80
Qd = 200 - 2P
60
40
Qd = 160 - 2P
20
D1
0
40
D0
80 120 160 200
Q/t
5. At a Q-intercept of 200 (D0, the original), for every dollar increase in price the quantity
demanded will decrease by 3; slope = ‘run over rise’ → slope = -3/1. Thus our new demand
function is Qd = 200 – 3P. The new price intercept is $66.6 (200/3) so we indeed see that this
good has become more sensitive to a change in price as there is a larger decrease in quantity
demanded for any given increase in price.
Price
Qd
66.7
0
49.9
60.2
33.3
93
16.6
0
126.8
200
P ($/unit)
100
Qd = 200 - 2P
66
D1
Qd = 200 - 3P
49
33
D0
16
0
60
93
Q/t
126
200
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S1.1 Ch 5
HL extension on supply function
Page 46
Pop Quiz 5.1
1. i) to iii) are moot.
2. The supply function Qs = 200 + 10P gives us the following table of quantity supplied at five
different prices:
Price
Qs
0
200
10
300
20
400
30
500
40
600
3. Putting these values into a basic diagram:
P ($/unit)
S
40
Qs = 200 + 10P
30
20
10
0
-20
200
300
400
500
600
Q/t
The negative portion of the P-axis is included
simply to illustrate that any supply curve with a
positive value of ’c’ (the Q-axis intercept) will
have a negative P-axis intercept.
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4. Again, a bit of an error here. The question reads “…20% change in supply…” but should in
fact read “…20% change in autonomous supply…” In any case, a decrease in the price of raw
material causes supply to increase – in this case we get a parallel shift of the supply curve to
the right (increase in supply) and a new S-function based on a 20% increase in autonomous
supply:
Qs = 240 + 10P.
Table for the new Qs at various prices:
Price
0
10
20
30
40
Qs
240
340
440
540
640
P ($/unit)
Qs = 200 + 10P
S0
S1
40
Qs = 240 + 10P
30
20
10
0
200 240 340
440
Q/t
540 640
-20
-24
The new P-intercept is calculated by inserting Q = 0 into the S-function and solving for P (as
an absolute number – we know it will be negative!), as in 0 = 240 + 10P → 240 = 10P →
P = 240/10 → P = │24│or -24.
An alternative method to calculate the new P-intercept – perhaps easier – is by increasing the
original P-intercept value (in absolute values, e.g. │1│ and not ‘-1’) by the same percentage
as the increase in autonomous supply (‘c’ in the S-function). Original ‘c’, the Q-intercept, was
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200 and increased by 20% to 240, so increasing the P-intercept (again, in absolute values!) by
the same percentage gives us │24│or -24 in reality.
The end result is that quantity supplied has increased by 40 units at all price levels – which is
known as an increase in supply.
5. Note that the question reads “…the new Q-intercept remains unchanged…” and since we are
changing the slope, the P-intercept must change.
The new S-function has a slope (again, ‘run over rise’) that is 8, since ‘run’ (ΔQ) divided by
‘rise’ (ΔP) is 8/1. The new S-function becomes Qs = 200 + 8P.
Price
0
10
20
30
40
Qs
200
280
360
440
520
P ($/unit)
Qs = 200 + 8P
S1
S0
40
Qs = 200 + 10P
30
20
10
0
200 280 360 440 520
Q/t
-20
-25
The new P-intercept is easiest calculated by inserting Q = 0 into the supply function and
solving for P in absolute terms (we know it is a negative value!): 0 = 200 + 8P → 200 = 8P →
P = 200 /8 → P = │25│, i.e. -25.
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S1.1 Ch 6
Market equilibrium
Page 58
Pop Quiz 6.4
1. xx
2. xx
3. xx
4. xx