Each Saturday a cheese stall sells its last wedge just as the last shopper who wants one at its price buys it. It has nothing left over, and no shopper willing to pay that price goes without. The stall's price is best described as

A price held below equilibrium.

A new games console sells out in shops in its first week, and resellers start asking well over the shop price. As the market price rises towards equilibrium

Demand contracts and supply extends.

Demand decreases and supply increases.

Demand extends and supply contracts.

Demand increases and supply decreases.

Over a year, the average price of a hotel room in a city falls, while the number of room nights booked rises. The change most likely to explain both is that

Several new hotels open in the city.

A large conference centre in the city closes.

A new rail link makes the city quicker to reach.

The council adds a tax on each room night.

A football club has kept its season-ticket price unchanged for many years. Every season ticket is sold, and 8,000 fans are on the waiting list. This market is best described as having

Excess demand, from a price held below equilibrium.

A market-clearing price, as every ticket is sold.

Excess demand that market forces will soon remove.

Excess supply, from a price held above equilibrium.

Cheaper animal feed lowers dairy farmers' costs. Over the same months, several new coffee chains open and demand for milk rises. Despite the cheaper feed, the price of milk rises. Sketching both shifts, it follows that

The increase in demand was larger than the increase in supply.

The increase in supply was larger than the increase in demand.

The quantity of milk sold must have fallen.

The supply of milk cannot have increased at all.

1.3.3 Price Determination — Practice Questions

Seven original multiple-choice questions on price determination: equilibrium, excess demand and supply, how markets clear, and the limits of the model.

7 questions Edexcel B A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 1.3.3 Price Determination revision notes.

7 questions in this set

1. Each Saturday a cheese stall sells its last wedge just as the last shopper who wants one at its price buys it. It has nothing left over, and no shopper willing to pay that price goes without. The stall's price is best described as

Definition in context

Select one answer
A A price causing excess demand.

B A price causing excess supply.

C A price held below equilibrium.

D The market-clearing price.
Show model answer
Answer: D (The market-clearing price.). At the equilibrium price the quantity buyers want equals the quantity sellers want to sell. It is also called the market-clearing price, because nothing is left unsold and no buyer who will pay that price goes without. That is exactly what happens at the stall.

Why the other options are wrong
- A — Excess demand would leave some shoppers who want cheese at that price without any. Here no one goes without.
- B — Excess supply would leave unsold cheese at the end of the day. Here nothing is left over.
- C — A price held below equilibrium causes a shortage, with shoppers turned away. The stall clears exactly.

2. Table 1 shows the demand for and supply of driveway parking spaces rented out by the month near a railway station. A large office park then opens nearby, and the demand for spaces rises by 20 at every rent.
Using Table 1, the new equilibrium rent and number of spaces let are

Data interpretation

Table 1: Driveway parking spaces near a station, per month
Monthly rent	Spaces demanded	Spaces supplied
£50	90	50
£60	80	60
£70	70	70
£80	60	80

Select one answer

A £80 and 60 spaces

B £70 and 70 spaces

C £80 and 80 spaces

D £70 and 90 spaces

Show model answer

Answer: C (£80 and 80 spaces). Add 20 to every figure in the demand column: 110 at £50, 100 at £60, 90 at £70 and 80 at £80.
Supply is unchanged, and 80 spaces are supplied at £80. Demand now equals supply at a rent of £80 with 80 spaces let.
At the old rent of £70 there would be excess demand of 90 − 70 = 20 spaces, which pushes the rent up until the market clears again.

Why the other options are wrong

A — This reads the original demand column at £80. Demand has risen by 20 at every rent, so 80 spaces are now wanted at £80, not 60.
B — This is the equilibrium before the office park opened. It ignores the rise in demand.
D — This is the new quantity demanded at the old rent of £70. Only 70 spaces are supplied at that rent, so it is a shortage, not an equilibrium.

3. A new games console sells out in shops in its first week, and resellers start asking well over the shop price. As the market price rises towards equilibrium

Applied reasoning

Select one answer
A Demand contracts and supply extends.

B Demand decreases and supply increases.

C Demand extends and supply contracts.

D Demand increases and supply decreases.
Show model answer
Answer: A (Demand contracts and supply extends.). Selling out shows excess demand: the price is below equilibrium. Excess demand pushes the price up. As it rises, buyers move up the demand curve, buying less (demand contracts), and sellers move up the supply curve, offering more (supply extends). This carries on until the two are equal.

Why the other options are wrong
- B — These are shifts of the curves. A change in the console's own price moves buyers and sellers along the existing curves.
- C — This is the reverse, which happens when a surplus pushes the price down.
- D — These are shifts, and in the wrong directions. The curves stay where they are while the price adjusts.
4. Over a year, the average price of a hotel room in a city falls, while the number of room nights booked rises. The change most likely to explain both is that

Applied reasoning Sketch to solve

Select one answer
A A large conference centre in the city closes.

B A new rail link makes the city quicker to reach.

C Several new hotels open in the city.

D The council adds a tax on each room night.
Show model answer
Answer: C (Several new hotels open in the city.). Sketch each change. A lower price with a higher quantity can only come from supply shifting right. New hotels increase the number of rooms on offer at every price. At the old price there is excess supply, so the price falls and more room nights are booked.

Why the other options are wrong
- A — Fewer visitors shift demand left, which lowers the price but also cuts the number of room nights booked.
- B — More visitors shift demand right, which raises both the price and the number of room nights.
- D — A tax adds to hotels' costs and shifts supply left, which raises the price and cuts bookings.
5. A large employer moves to a town, and demand for homes there rises sharply. Three years later house prices are still rising, because few new homes have yet been finished. The limitation of the supply and demand model this best illustrates is

Definition in context

Select one answer
A Ceteris paribus.

B Imperfect information.

C Non-price factors.

D Time lags.
Show model answer
Answer: D (Time lags.). The model assumes supply responds to a higher price. In reality supply often cannot respond quickly: new homes take years to plan and build. Until they are finished the shortage lasts and prices keep rising. That is a time lag.

Why the other options are wrong
- A — Ceteris paribus fails when several factors change at once. Here there is one change, the rise in demand.
- B — Imperfect information means buyers and sellers do not know where the equilibrium is. The problem here is that builders cannot respond fast enough.
- C — Non-price factors are about firms competing on quality, brand and service. They do not explain a slow supply response.
6. A football club has kept its season-ticket price unchanged for many years. Every season ticket is sold, and 8,000 fans are on the waiting list. This market is best described as having

Applied reasoning

Select one answer
A A market-clearing price, as every ticket is sold.

B Excess demand that market forces will soon remove.

C Excess demand, from a price held below equilibrium.

D Excess supply, from a price held above equilibrium.
Show model answer
Answer: C (Excess demand, from a price held below equilibrium.). The waiting list shows excess demand: more fans want season tickets at that price than there are tickets. The club has held the price there for years, so market forces are not being allowed to push it up. This is a market that does not clear, because the price is held below equilibrium on purpose.

Why the other options are wrong
- A — Every ticket being sold is not enough. At a market-clearing price there would also be no fans left wanting one, and there are 8,000.
- B — There is excess demand, but the club has kept the price where it is for many years. Market forces only remove a shortage if the price is free to rise.
- D — Excess supply would mean unsold tickets. Every ticket is sold and fans are queuing for more.
7. Cheaper animal feed lowers dairy farmers' costs. Over the same months, several new coffee chains open and demand for milk rises. Despite the cheaper feed, the price of milk rises. Sketching both shifts, it follows that

Applied reasoning Sketch to solve

Select one answer
A The increase in demand was larger than the increase in supply.

B The increase in supply was larger than the increase in demand.

C The quantity of milk sold must have fallen.

D The supply of milk cannot have increased at all.
Show model answer
Answer: A (The increase in demand was larger than the increase in supply.). Cheaper feed shifts supply right, which on its own lowers the price. More coffee chains shift demand right, which on its own raises it. With both curves shifting right, the effect on price depends on which shift is bigger. The price rose, so the increase in demand must have been larger.
This is why ceteris paribus matters: the model's simple prediction for cheaper feed fails when demand changes at the same time.

Why the other options are wrong
- B — If supply had risen by more, the price would have fallen.
- C — Both curves shift right, and each shift on its own raises the quantity sold. Quantity must have risen.
- D — Lower costs do increase supply. A rising price does not prove supply stood still, only that demand rose by more.

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Revision Notes: Price Determination Edexcel B Past Papers Enquire About Tutoring

1. Each Saturday a cheese stall sells its last wedge just as the last shopper who wants one at its price buys it. It has nothing left over, and no shopper willing to pay that price goes without. The stall's price is best described as

2. Table 1 shows the demand for and supply of driveway parking spaces rented out by the month near a railway station. A large office park then opens nearby, and the demand for spaces rises by 20 at every rent.Using Table 1, the new equilibrium rent and number of spaces let are

3. A new games console sells out in shops in its first week, and resellers start asking well over the shop price. As the market price rises towards equilibrium

4. Over a year, the average price of a hotel room in a city falls, while the number of room nights booked rises. The change most likely to explain both is that

5. A large employer moves to a town, and demand for homes there rises sharply. Three years later house prices are still rising, because few new homes have yet been finished. The limitation of the supply and demand model this best illustrates is

6. A football club has kept its season-ticket price unchanged for many years. Every season ticket is sold, and 8,000 fans are on the waiting list. This market is best described as having

7. Cheaper animal feed lowers dairy farmers' costs. Over the same months, several new coffee chains open and demand for milk rises. Despite the cheaper feed, the price of milk rises. Sketching both shifts, it follows that

Your score

2. Table 1 shows the demand for and supply of driveway parking spaces rented out by the month near a railway station. A large office park then opens nearby, and the demand for spaces rises by 20 at every rent.
Using Table 1, the new equilibrium rent and number of spaces let are