About Demand, supply and the price mechanism in O Level Economics
Demand, supply and the price mechanism is one of the 8 main topics in our O Level Economics (Cambridge (CAIE) 2281) question bank, and about 13% of its real questions come from it. Tayyari Karo has 50 real questions on this topic from 2021 to 2026, from Paper 1, Paper 2; 41 are multiple choice and marked instantly, and the rest are structured questions with a model answer. By difficulty: 30 medium, 13 easy, 7 hard.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
Try 6 real questions
These are real past-paper questions. Think of your answer first, then open the explanation.
May/June 2025 · Paper 1 · Demand, supply and the price mechanism
Good weather results in an increase in the demand for and supply of peaches. How will this affect the price and quantity traded in the market for peaches?
- both price and quantity traded fall
- both price and quantity traded rise
- quantity traded is uncertain and price rises
- quantity traded rises and price is uncertain
Show answer and explanation
Answer: D. quantity traded rises and price is uncertain
Both curves shifting right definitely raises quantity, but the effect on price depends on the relative shifts.
May/June 2024 · Paper 1 · Demand, supply and the price mechanism
What could cause the price of tea to increase?
- decrease in the demand for tea
- decrease in the price of a substitute good
- increase in the price of a substitute good
- increase in the supply of tea
Show answer and explanation
Answer: C. increase in the price of a substitute good
A dearer substitute, such as coffee, switches demand to tea, raising its price.
Oct/Nov 2024 · Paper 1 · Demand, supply and the price mechanism
When the price of shirts rises from $8 to $10, the demand for shirts falls from 1000 to 500. What is the value of the price elasticity of demand for shirts?
- greater than 1
- unitary
- less than 1
- zero
Show answer and explanation
Answer: A. greater than 1
Price rises 25% while quantity demanded falls 50%, so PED = 50/25 = 2, which is greater than 1 (elastic).
Oct/Nov 2023 · Paper 1 · Demand, supply and the price mechanism
What is the value of the price elasticity of demand (PED) for a product if total revenue remains the same when the price is reduced?
- zero
- between 0 and 1
- greater than 1
- 1
Show answer and explanation
Answer: D. 1
Unitary elasticity (PED = 1) means the percentage rise in quantity exactly offsets the percentage fall in price, so revenue is unchanged.
Oct/Nov 2023 · Paper 1 · Demand, supply and the price mechanism
What causes a change in the price of a product in a free market economy?
- changes in demand and supply conditions
- changes in external costs and external benefits
- changes in government decisions
- changes in the quantity of public goods
Show answer and explanation
Answer: A. changes in demand and supply conditions
In a free market, price is set where demand equals supply, so only changes in demand or supply conditions alter it.
May/June 2022 · Paper 1 · Demand, supply and the price mechanism
The development of artificial intelligence in machines raises the productivity of capital. What will be the effect of this?
- The costs of production will increase.
- The demand for capital will increase.
- The price of capital will fall.
- The supply of capital will decrease.
Show answer and explanation
Answer: B. The demand for capital will increase.
More productive capital is more profitable to employ, so demand for it rises.
