(note to printlink, please can this page be a black and white copy of the cover page.)
90983
Page
1.1 Consumer Choices using Demand
Limited means relative to wants
07
Scarcity, choices and opportunity cost 13
Individual demand schedules
18
Individual demand curves
23
Consumer reaction to price changes
28
Consumers and non-price changes
33
Household income and spending
44
Demand curves summary / flow chart 59
1.1 Checklist and evaluation
63
1.1 Practice NCEA exam
64
90985
1.3 Producer Choices using Supply
Individual supply schedules
70
Individual supply curves
75
Producer reaction to price changes
80
Producers and non-price changes
85
Supply curves summary / flow chart
98
Flow-on effects and impacts on firms 106
1.3 Checklist and evaluation
111
1.3 Practice NCEA exam
112
90986
1.4 Choices and Market Equilibrium
Market demand schedules and curves 117
Market supply schedules and curves 121
Market equilibrium
126
Market reaction to a shortage/surplus 131
Changes in demand and supply
137
Effect of a sales tax
145
Effect of a direct tax
152
Effect of a subsidy
154
Effect of a max. / min. price control
161
1.4 Checklist and evaluation
167
1.4 Practice NCEA exam
169
Find out
what is
required
SUCCESS
Deliver
90984
Page
1.2 Producer Choices using Production
Resources and resource use
177
Renewable and non-renewable
179
Labour and capital intensive methods 183
Goals of producers
184
Factors affecting productivity
189
Business expansion
192
Economies and diseconomies of scale 196
Price marketing
200
Non-price marketing
202
1.2 Checklist and evaluation
207
90987
1.5 Choices with Different Viewpoints
Scarcity and economic decisions
210
Costs, benefits and compromises
212
Justified recommendations
214
Internal planning page
216
Practice internal
217
1.5 Checklist and evaluation
220
90988
1.6 Interdependence in NZ Economy
Interdependence in producer sector
222
Interdependence between sectors
226
Circular flow model
227
Impact of an event on a sector
231
Flow-on effects to other sectors
234
1.6 Checklist and evaluation
240
-
–
 Limited means relative to wants
Ben’s resources are his
four personal means.
He can use his personal endowments
to satisfy his needs and wants.
Terms to memorise
Resources – personal
endowments we have (Family, Incom
Income, Time, Skills). F.I.T.S.
Means – personal resources.
F
Family is limited:
 Parents and grandparents.
 Whanau / hapu / iwi.
 Brothers / sisters.
Income is limited:
 Wages or salary.
 Gifts/donations/transfers.
 Investment income.
Whanau – extended family.
Time – hours, days available.
Skills – abilities,qualifications.
I
T
S
Time is limited:
 Only 24 hours in a day.
 We can only do one
thing at a time etc.
Skills are limited:
 Ability to do something.
 Ability to make something.
 Talents and qualifications.
Ben’s wants are unlimited as he always desires more than he has now.
Income - money earned.
Wants – desires. Goods and
services that we would like to
have but are not essential for
life.
Needs – essentials for living.
a) Individuals have N__________ and W____________. We use our P__________ R___________ (also called
M_______) to satisfy our needs which are E__________. Then we use our remaining means to satisfy our
W_______ which are D__________. Our means are L___________ whereas our wants are U___________.
b) What are Ben’s four limited means? F ____________ I ______________ T _____________ S ____________
c) Why does being part of a larger family increase a person’s means? __________________________________
d) State three ways Ben could earn an income. 1 _______________ 2 ________________ 3________________
e) Identify two ways Ben could increase his skills. 1 ______________________ 2 ________________________
f) State the acronym that can be used to remember the four limited means all consumers have.______________
g) Why are Ben’s “means” limited? _____________________________________________________________
h) Why are Ben’s “wants” unlimited? ____________________________________________________________
i) Complete the table below by circling the correct “means”.(F = family. I = income. T = time. S = skills)
A
B
C
D
E
Personal resource Type of “means”
Saturday mornings
F I T S
Driver’s licence
F I T S
Wages
F I T S
Grandparents
F I T S
First Aid Certificate
F I T S
F
G
H
I
J
Personal resource
Type of “means”
Birthday money
F I T S
NCEA qualification
F I T S
Weekdays after school
F I T S
Parents
F I T S
Interest on savings
F I T S
1a. Draw each of your immediate family members on the inside circle and label them.
1b. Draw each of your extended family members on the outside circle and label them.
1c. Complete the table.
List each family
member here
How each person has helped you
satisfy a need or a want
ME
2. Use arrows to match the following situations to income and type of income earned.
Mow neighbour’s lawn
It’s my birthday
Wrote a book
Savings in the bank
Have a job as a teacher
Real estate agent sells a house
Gift of $30
$20 wages
$2 per item sold
3% earned on bank deposit
4% of final sale price
$50,000 per year
Annual salary
Transfer payment
Payment for labour
Interest received
Royalty payment
Commission
3. The table below shows the time spent on various activities by the average New Zealander. Complete the table
by recording the amount of time you spend each day on each activity, then tick the more than or less than
average columns. (Note: data from statistics.govt.nz)
Activity
Average
New Zealander
Sleeping
Housework
Watching TV
Eating and
drinking
Socialising and
talking
Shopping
How I spend
my time
More than
average 
Less than
average 
8 hours
48 minutes
2 hours
22 minutes
2 hours
8 minutes
1 hour
25 minutes
1 hour
7 minutes
40 minutes
Education and
training
Exercise
39 minutes
Religious and
cultural activities
13 minutes
19 minutes
4. State an example for each of the following:
How do you use your income to be entertained and not bored? ______________________________________
How do you use your family to feel nourished and not hungry? ______________________________________
How do you use your skills to get around town and not be stuck at home? _____________________________
FITS: Ben’s Dad is helping him with his homework.
FITS: Ali is getting married. Her mum makes a
wedding dress for her.
1. Explain why Ben’s family increases his means.
1. Explain how Ali’s mum increases her means.
(D)Means = personal resources. Family = whanau (D)Means =
(E)Because Ben’s dad is a family member he is
(E)Because
Family =
willing to help Ben out. Ben can achieve more with
the help of his family than he could on his own.
(R)Ben’s family helps him increase his means.
(R)
FITS: Ben has $200 in the bank. He wants to buy a
new iPod and a new PS3 games system.
FITS: Ali has $10,000 in the bank for her wedding
but she also wants to get a new car.
2. Explain why Ben cannot buy everything he wants.
2. Explain why Ali cannot buy everything she wants.
(D)Wants = desires. Means = personal resources.
(E)Because Ben has only $200 in the bank and
(D)Wants =
(E)Because
Means=
an iPod and a PS3 cost more than $200.Ben doesn’t
have enough income so he needs to make a choice.
(R)Ben has $200 but wants an iPod and PS3.
FITS: Ben works at the supermarket on Saturdays.
This winter he wants to join a rugby team.
3. Explain the concept of limited means to Ben.
(D)Limited means =. Personal resources eg. time.
(E)Because Ben has limited time on Saturdays he
(R)
FITS: Ali works full time but also wants to complete
a degree at university.
.
3. Explain the concept of limited means to Ali.
(D)Limited means =
(E)Because
can’t work at the supermarket and play rugby. Ben
needs to choose one option as his time is limited.
(R)Ben has limited means (eg. time).
(R)
FITS: Ben made a skateboard ramp out of old
plywood sheets he found in the garage.
FITS: Ali spent Saturday morning changing the oil
in her new car.
4. Explain how Ben’s skills increase his means.
4. Explain why Ali’s skills increase her means.
(D)Skills = ability. Means = personal resources.
(E)Because Ben had the skills required to make a
(D)Skills =
(E)Because
skateboard ramp, he had the ability to satisfy a want
that he may not have had the income to purchase.
(R)Ben’s ramp building skills increased his means. (R)
Means =
The marker is looking for:
Get it right! You need to:
 (D) Define the limited means of the consumer.
 (E) Explain the connection between the means being limited and
the consumer’s wants being unlimited.
 (R) Refer to the information in the reference material.



Limited means are identified.
Reference is made to the
resource material.
Connection between limited
means and unlimited wants.
Exam technique:
Common mistakes:
 Write F.I.T.S in the margin of the exam paper to
help you remember: Family Income Time Skills.



Not writing “time is limited etc” in the answer.
Not referring to the information in the question.
Saying “money” instead of “income”.
Sam is considering between going to a Guitar Hero competition on Saturday, and going to the mall to
cruise round with his mates. His mum wants him to stay home and tidy his room and mow the lawn.
1. Explain how time is a limited means for Sam.
(D)Time =
(E)Because
Limited means =
(R)
Sam has $300 in the bank. He is saving up to buy his first car. In the weekend he also saw a guitar he
wants to purchase. During the week he wants to take his girlfriend out to see a movie.
.
2. With reference to the information above explain why Sam is not able to satisfy all his wants.
(D)Wants =
(E)Because
Limited means =
(R)
Sam is organising his 21st birthday. His mum will help make the food while his dad is going to set up
the hall. His uncle will operate the BBQ and his grandmother has written out all the invitations.
3. Explain with reference to the information above how Sam’s family increases his personal resources.
(D)Family =
(E)Because
(R)
Personal resources =
Assessor’s
use only
(circle)
Alice wants to play in the school basketball team. She would also like to be in Stage Challenge.
However, rehearsals are on Fridays, when her games are on. Alice’s mum drives her to after
school activities as she doesn’t have her licence yet. She is still saving up for driving lessons.
(a)
gfgf
From the information above, identify one of Alice’s means.
A
(b)
State one way Alice’s family increases her limited means.
A
(c)
Explain how Alice’s skills influence her ability to participate in after school activities.
(D)
(E)
(R)
(d)
M
Explain how income is a limited personal resource for Alice.
(D)
(E)
(R)
(e)
M
Alice wants driving lessons. Explain how Alice could use her income to satisfy her wants.
(D)
(E)
(R)
M
(f) Explain why Alice has to choose between playing basketball and participating in Stage Challenge.
(D)
(E)
M
(R)
My grade for this section: (circle)
ACHIEVED
MERIT
EXCELLENCE
A=2A
M=2A+3M
E=2A+4M
1. Using the economic definition of the term scarcity (on previous page), highlight the items below that are scarce.
cans of coke
skateboards
cabbages sea salt
sheep
grass
electricity water pens
iPad
time rice
cars
trees broom handles
helicopters sand good teachers
2. Complete the flow chart below.
How much
money
is in your
wallet?
What are your options for
spending it on food today?
Rank your options from best
to worst:
State the opportunity
cost of your first choice.
1st:
2nd:
3rd:
4th:
3. Describe how a value that you have influenced your decision on what food you chose.
4. Use arrows to match the situations below to values people have and to the products they purchase as a result.
Phone a lonely relative
Friend’s birthday
Study lots for the test
Save water
Say please and thank you
Only eat fruit and vegetables
Help others in a time of need
Try my best
Be considerate
Don’t kill animals to eat
Care for the environment
Use good manners
Thank you cards
Gifts
Rainwater tanks
Revision guides
Cell phone
Vegetarian sausages
5. State two economic decisions you have made this week and identify your values behind these choices.
1
2
6a. Close your eyes and imagine you won a DVD hire voucher. Identify and rank your top four choices of movies.
1st choice
2nd choice
3rd choice
4th choice
6b. State the opportunity cost of your first choice. __________________________________________________
7a. Imagine you have 10,000 FlyBuys points. Research the FlyBuys catalogue at www.flybuys.co.nz and choose
three items for each person. Rank them and place them in the table below. (This may be a homework task).
Rank
1 choice
Me
Mum or Dad
A teacher
st
2nd choice
3rd choice
7b. State the opportunity cost of your first choice. _________________________________________________
7c. Why would the three people choose different FlyBuys rewards? ___________________________________
7d. How did your values influence your decision to spend your FlyBuys rewards on your first choice?
1. Use the graphs to complete the sentences below.
(A) Ben’s weekly demand curve for salad rolls
(B) Linda’s weekly demand curve for pies
5.0
8
Price
$
Price
7
$
4.5
6
4.0
3.5
P2 5
P1 3.0
4
2.5
2.0
3
P1
1.5
2
P2 1.0
D
1
0
05 10 15
20
Q2
25
30
0
35 40
Q1
D
0.5
Quantity (ea)
05 10 15
20
25
Q1
30
35 40
Q2
Quantity (ea)
(A) In Graph A the price has __________ by ____, from ______ to ______. The quantity demanded has ______
by ________, from _______ to ________. There has been a movement ________ the demand curve.
(B) In Graph B the price has __________ by ____, from ______ to ______. The quantity demanded has ______
by ________, from _______ to ________. There has been a movement ________ the demand curve.
2. Complete the following table by ticking the correct column.
Situation
Price increases
Quantity demanded increase
Quantity demanded decrease
Price decreases
3. Describe why you send more text messages when the price per text decreases.
4. Complete the table below by placing a smiley face in the correct column.
Situation
The law of demand states that as price increases, quantity demanded increases
and as the price decreases, the quantity demanded decreases.
The law of demand states that as the price increases, demand decreases
and as the price decreases the demand increases.
The law of demand states that as the price increases, quantity demanded
decreases and as the price decreases the quantity demanded increases.
True
False
5. Match the correct terms using arrows.
Three labels for a price change
Law of demand
Price decrease
Ceteris paribus
Price increase
Results in an increase in quantity demanded as more affordable
Results in a decrease in quantity demanded as less affordable
As price falls quantity demanded rises and vice versa
Labels (P1,P2) (Q1,Q2), dotted lines and arrows
Everything remaining the same apart from the price
Price change
price
increase
Read the question. Is the price
of the good changing?
Law of
demand
applies
Ceteris paribus applies
What is happening to the
price?
movement
along the
curve
How do you draw the change
to the demand curve?
price
decrease
Price
change?
Change in
quantity
demanded
Price
increase?
Quantity
demanded
falls Q1 to Q2
Quantity
demanded
Price
decrease?
Price
increases from
P1 to P2
Quantity
demanded
rise Q1 to Q2
Price
$
Price
$
P2
P1
P1
P2
Price
decreases
from P1 to P2
D
D
Q2
Q1
Q1
Quantity
Q2
Quantity
Non price change
T.I.C.S
increase
Read the question. Is
something other than the price
changing?
Non-price
change?
Demand
Is there a change in Tastes,
Income, Complement price or
Substitute price? (T.I.C.S.).
Ceteris
paribus
broken
Does the T.I.C.S factor cause
demand to increase or
decrease?
How do you draw the change
to the demand curve?
T.I.C.S.
decrease
Change in
demand
T.I.C.S.
factor
decrease?
T.I.C.S.
factor
increase?
Shift of the
curve left
from D to D1
Demand
decreases
Demand
increases
Price
$
Price
$
P1
P1
Shift of the
curve right
from D to D1
Shift of
the curve
D1
Q2
D
Q1 Quantity
D
Q11
D1
Q2 Quantity
Did the price of the
good itself change?
Did the price increase?
yes
Did the price decrease?
no
yes
yes
no
Price
$
Price
$
P2
P1
P2
P1
D
D
Q2
Q1
Q1
Quantity
Explain a decrease in quantity demanded.
Q2
Quantity
Explain an increase in quantity demanded.
D Quantity demanded is how many a consumer is
willing and able to demand at one price.
D Quantity demanded is how many a consumer is
willing and able to demand at one price.
E Because (state the good) price increases it is
relatively less affordable so consumers (state the
consumer’s name) switch to a relatively cheaper
substitute instead (Eg...). This follows the law of
demand.
E Because (state the good) price decreases it is
relatively more affordable so consumers (state the
consumer’s name) switch from a relatively more
expensive substitute instead (Eg...). This follows the
law of demand.
R As price of (state good) increases from P1 to P2
(state prices) the quantity demanded decreases from
Q1 to Q2 (state quantities).
R As price of (state good) decreases from P1 to P2
(state prices) the quantity demanded increases from
Q1 to Q2 (state quantities).
Did the consumer’s
Tastes, fashion or
preferences change?
Did Tastes, fashion
or preferences increase?
yes
no
yes
yes
no
Price
$
Price
$
P1
P1
D
Q11
D1
Q2 Quantity
Explain a demand increase.
Did Tastes, fashion
or preferences decrease?
D1
Q2
D
Q1 Quantity
Explain a demand decrease.
D Tastes, fashion or preferences increase.
D Tastes, fashion or preferences decrease.
E Because (insert consumer’s name) is more
willing to demand (state good) as his/her tastes /
fashion / preferences for (state good) increase.
E Because (insert consumer’s name) is less
willing to demand (state good) as his/her tastes /
fashion / preferences for (state good) decrease.
R (Insert consumer’s name) demand for (state
good) increases so his/her demand curve shifts
right from D to D1.
R (Insert consumer’s name) demand for (state
good) decreases so his/her demand curve shifts
left from D to D1.
You should spend 40 minutes answering this paper.
QUESTION ONE
Zac works every Saturday at the local Warehouse, earning around $80 which he will use in one of
the following ways:
OPTION 1: spend $80 at the supermarket. OPTION 2: donate $80 to World Vision. OPTION 3:
save for university.
(a) Explain why Zac needs to make an economic decision. In your explanation:
 refer to Zac’s limited means
 include the concept of scarcity.
(b) Explain why spending the $80 at the supermarket could be a want for Zac or a need.
In your explanation:
 define needs and wants
 include examples.
Assessor’s
use only
(c) Explain how Zac’s values may influence the decision he will make on using his $80.
In your explanation:
 define what is meant by “values”
 identify and explain possible values which would result in Zac choosing each of the options.
Zac decides his preferred option is to save for university and his least preferred choice is to spend
the $80 at the supermarket.
(d) Explain why a World Vision donation is Zac’s opportunity cost of saving for university.
Assessor’s
use only
QUESTION TWO
Assessor’s
use only
Zac enjoys energy drinks, especially on hot days when he has hockey practice.
The demand schedule below shows the number of times Zac will buy an energy drink in a year.
Zac’s Annual Demand Schedule
for Energy Drinks
Price $ (ea)
Quantity
0.50
52
1.00
44
1.50
36
2.00
32
2.50
28
3.00
24
(a) On the grid below, draw Zac’s annual demand curve for energy drinks. Fully label your graph.
title: __________________________________________________________
(b) Zac is more likely to purchase energy drinks that only have natural colours in them. Which
requirement of consumer demand does this illustrate?
(c) Explain how your completed demand curve illustrates the law of demand. In your explanation:
 define the law of demand
 use data from your completed demand curve
 use economic terms.
Zac noticed that the price of energy drinks recently increased from $2.00 to $3.00 at the dairy.
(d) Fully Explain Zac’s economic decision based on the information above. In your explanation:
 on your graph on the previous page, show the effect of the price change from $2.00 to $3.00
 explain the relationship between the price and quantity demanded
 explain the reason for Zac’s response to the price change
 refer to your graph and use economic terms.
During the lead up to Tournament Week, Hockey practices increased to two days per week.
(e) Fully explain how the increase in hockey practices will affect Zac’s demand for energy drinks.
In your answer you should:
 provide a sketch graph (use the space and axes provided)
 fully label your graph
 explain the reason for any change in the amount of energy drinks Zac might demand
 use economic terms and refer to the information in your graph.
Zac’s Annual Demand Curve for Energy Drinks
D
Assessor’s
use only
QUESTION THREE
Assessor’s
use only
Recently the price of milkshakes, which Zac sometimes bought instead of energy drinks, decreased.
(a) Fully explain the effect of the decrease in the price of milkshakes on Zacs demand for energy drinks.
In your answer:
 complete the sketch graph for energy drinks
 explain the relationship between milkshakes and energy drinks
 explain the effect of the decrease in price of milkshakes on Zac’s demand for energy drinks
 use economic terms and refer to your completed sketch graph.
Zac’s Annual Demand Curve for Energy Drinks
D
Zac normally gets a brand new pair of hockey boots each season. However, this season he could
only afford a second hand pair since he gave up his normal Saturday shift to play hockey.
(b) Explain the effect of Zac’s decreased income on his demand for hockey boots. In your answer:
 define a luxury and an inferior good
 explain the effect of Zac’s decreased income on his demand for new hockey boots
 identify and explain which type of hockey boots are luxury and inferior versions of footwear.
How to show market reaction to shortage:
MS
1. Draw a horizontal line across at the current price (below equilibrium).
2. Draw a dot where the current price line intersects the supply curve
and draw a dotted line down. Label this line QS.
3. Draw a dot where the current price line intersects the demand curve
and draw a dotted line down. Label this line QD.
EP1
4. Draw an arrow between QS and QD and label this “shortage.”
Current price
5. Consumers bid up price so draw an arrow on the price axis from the
current price line to the equilibrium. Draw an arrow up the demand
4.curve
fdfdfdfdf
(since it’s a price change) from the QD dot to the equilibrium.
Firms increase quantity supplied as relatively more profitable so draw
an arrow up the supply curve from the QS dot to the equilibrium.
MD
QS
Q
shortage
QD
Practice 1: Show market reaction to a shortage Practice 2: Show how the equilibrium is restored following a shortage
MS
P
MS
P
MD
MD
Q
Q
How to show market reaction to surplus:
MS
1. Draw a horizontal line across at the current price (above equilibrium).
2. Draw a dot where the current price line intersects the supply curve
and draw a dotted line down. Label this line QS.
3. Draw a dot where the current price line intersects the demand curve
and draw a dotted line down. Label this line QD.
Current price
EP1
4. Draw an arrow between QS and QD and label this “surplus.”
5. Producers lower price so draw an arrow on the price axis from the
current price line to the equilibrium. Draw an arrow down the demand
curve (since it’s a price change) from the QD dot to the equilibrium.
Firms decrease quantity supplied as relatively less profitable so draw
an arrow down the supply curve from the QS dot to the equilibrium.
MD
QD
Q
surplus
QS
Practice 3: Show market reaction to a surplus Practice 4: Show how the equilibrium is restored following a surplus
MS
P
MS
P
MD
Q
MD
Q
Show how the equilibrium is restored following an increase in market demand
(worked example)
As a result of an increase in market demand, a shortage results at the current
price (arrow between QS and QD1).
MS
Note at the original equilibrium QS and QD are the same but following the
increase in market demand, at the original equilibrium price the new quantity
demanded has now increased to QD1.
P1
P
MD
1
MD
QS
Eq
QD1
Consumers bid up the price (from P to P1) so they don’t miss out.
As the price increases, quantity supplied increases as it becomes relatively
more profitable (law of supply) from QS to Eq and quantity demanded
decreases as it becomes relatively less affordable (law of demand) from QD1
to Eq. This process continues until the equilibrium is restored at P1 and Eq.
Show how the equilibrium is restored following an increase in market demand
(practise yourself)
a) Label the original equilibrium price (P) and quantity (Q) with dotted lines.
MS
b) Draw a horizontal line all the way across at the original equilibrium price.
c) Draw a dot where the equilibrium price line hits the supply curve.
d) Draw a vertical dotted line down and label it QS on the quantity axis.
e) Draw an arrow from the dot to the new equilibrium along the supply curve.
MD
1
MD
f) Draw a dot where the old equilibrium price line hits the new demand curve.
g) Draw a vertical dotted line down and label it QD1 on the quantity axis.
h) Draw an arrow from the dot (f) to the new equilibrium along the MD curve.
i) Draw a double ended arrow between QS and QD1 and label it shortage.
Show how the equilibrium is restored following a decrease in market demand
(worked example)
As a result of a decrease in market demand, a surplus results at the current
price (arrow between QD1 and QS).
MS
Note at the original equilibrium QS and QD are the same but following the
decrease in market demand, at the original equilibrium price the new quantity
demanded has now decreased to QD1.
P
Producers lower their prices (from P to P1) to clear stock.
P1
MD
MD
QD1
Eq
1
QS
As the price decreases, quantity supplied decreases as it becomes relatively
less profitable (law of supply) from QS to Eq and quantity demanded increases
as it becomes relatively more affordable (law of demand) from QD1 to Eq.
This process continues until the equilibrium is restored at P1 and Eq.
Show how the equilibrium is restored following a decrease in market demand
(practise yourself)
a) Label the original equilibrium price (P) and quantity (Q) with dotted lines.
MS
b) Draw a horizontal line all the way across at the original equilibrium price.
c) Draw a dot where the equilibrium price line hits the supply curve.
d) Draw a vertical dotted line down and label it QS on the quantity axis.
e) Draw an arrow from the dot to the new equilibrium along the supply curve.
f) Draw a dot where the old equilibrium price line hits the new demand curve.
g) Draw a vertical dotted line down and label it QD1 on the quantity axis.
MD
MD
1
h) Draw an arrow from the dot (f) to the new equilibrium along the MD curve.
i) Draw a double ended arrow between QD1 and QS and label it surplus.
’
Instructions:
MS
1. Label equilibrium price as old price to consumer/producer and
equilibrium quantity as old quantity with dotted lines and labels.
2. Choose 3 points on supply curve: one near the bottom of the
supply curve (Huey), one at equilibrium (Dewey) and one near
the top of the supply curve (Louie).
3. Draw an arrow down from each point by the dollar amount of
the subsidy (use price scale), marking points at the bottom.
4. Sketch a new curve through these points and label it MS1.
MS1
P
p
P OLD
P
c
5. At the new equilibrium draw a dotted line down. Label Q1.
6. At the new equilibrium draw a dotted line across to the price
C
axis and label this “price consumer pays” (P ).
D
7. At the new equilibrium, draw a dotted line up to the old supply
curve and then across to the price axis and label “price
P
producer”(P ).
OLD
Q
Practice 1
1
Q
Practice 2
MS
MS
MD
MD
1. On your completed Practice 1 graph above:
MS
a. Shade in total consumer spending before
MS1
b. Shade in total producer revenue before
2. On your completed Practice 2 graph above:
a. Shade in total cost of subsidy to government
b. Shade in total consumer spending after
PP
POLD
PC
c. Total producer revenue after subsidy
3. On the graph provided (right):
MD
a. Shade in the change in producer revenue
QOLD
Q1
.

For Merit and Excellence I can:
Explain the difference between market demand
and individual demand.
Explain the difference between market supply
and individual supply.

For Achievement I can:
Define market equilibrium, shortage, surplus.
Identify and label on a graph: equilibrium price
and quantity, surplus and shortage using
dotted lines, labels and arrows.

For Merit and Excellence I can:
Explain how equilibrium is reached.
Explain how market reacts / equilibrium is
restored following a shortage or surplus.

For Achievement I can:
Identify factors affecting the demand curve
ie T.I.C.S factors.
Identify factors affecting the supply curve
ie P.E.T.R.O.L.C. factors.


For Merit and Excellence I can:
Use dotted lines, arrows and labels to show
a change in demand (shift) / supply (shift).
Identify the market situation that results (shortage
or surplus) and explain how the equilibrium is
restored.
Explain the effect of a change in demand / supply
on the equilibrium price and quantity.
For Achievement I can:
Define sales tax, consumer spending, producer
revenue.
Show the effect of a sales tax on a graph.
Identify the new price consumers pay and the
new price producers receive after a sales tax.
Identify the new quantity sold following the
imposition of a sales tax.

For Merit and Excellence I can:
Explain reasons for the imposition of a sales tax.
For Achievement I can:
Define market demand and market supply.
Calculate market demand and market supply.
Construct a market demand / supply schedule.
Construct a market demand / supply curve.
Explain why firms reduce supply with a sales tax.
Calculate the change in total consumer spending,
producer revenue and calculate total tax paid.
Explain the impact of a sales tax on consumers,
producers and the government.

For Achievement I can:
Define direct tax, income and disposable income.
Show the effect of a direct tax on a graph.
Identify the effect of the direct tax on price
and quantity.
For Achievement I can:
Define subsidy, consumer spending, and
producer revenue.
Show the effect of a subsidy on a graph.
Identify the new price consumers pay and the
new price producers receive after a subsidy
Identify the new quantity sold following the
imposition of a subsidy.
Describe the impact of a subsidy on consumers,
producers and the government.


For Merit and Excellence I can:
Explain why consumer demand changes
following a change in a direct tax.
Explain a consequence / flow-on effect on
consumers of their change in demand.
Explain a consequence / flow-on effect on
producers and the government of the direct tax.

For Merit and Excellence I can:
Explain reasons for the imposition of a subsidy.

Explain why firms increase supply with a subsidy.
Calculate the change in total consumer spending,
firms’ revenue and calculate total cost of subsidy.
Explain the impact of a subsidy on consumers,
producers and the government
Explain why producers revenue increases with
a subsidy.