Chapter 2: Demand, Supply & Market Equilibrium

Chapter 2:
Demand, Supply
& Market Equilibrium

End of in this chapter, student should know:

 Classification of goods in economics and Islamic economics


 Definition of demand & supply

 Explain the Law of demand & law of supply

 Differentiate between change in demand/supply VS change in quantity
demand/supply

 Explain factors determine demand/supply

 Equilibrium price and quantity

 Disequilibrium in the market

 Differentiate between price ceiling and a price floor

 Advantages and disadvantages of price ceiling and the price floor

 Explain tax and subsidy

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 Chapter 2: Demand, Supply & Market Equilibrium

PART A: STRUCTURED QUESTIONS

1. Sketch a diagram to show the effect during movement control order due to the spread of pandemic
Covid-19 in Malaysia.

a. Demand for facemask

b. Demand for petrol

c. Demand for hand sanitizer

d. Demand for house

e. Demand for food

f. Demand for air travel

2. Sketch a diagram to show the supply effect on price and quantity for Gardenia bread of the following
situation:

a. Increase the price of flour.

b. Government imposed zero tax for bread and other necessary food

c. Government announce increase in minimum wage from RM1000 to RM1200

d. Influx of foreign labour in food industry

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 Chapter 2: Demand, Supply & Market Equilibrium

3. Sketch a diagram to show the effect on chicken-based of the following situation:

(10 points)

a) Price of the chicken increase due to the shortage of chicken.

b) Price of fish decrease.

c) Demand for roasted chicken has been increasing due to Kenny Rogers’s promotion meal.

d) Income for the consumer in Malaysia increase.

4. Sketch a diagram to show the effect on demand for Mc Donald in Malaysia based on the following
situation:
(10 points)

a) Prosperity burger is on promotion in Malaysia.

b) News claim that Mc Donald Malaysia chain refuted allegations that it helped fund Israeli attacks

on Gaza.

c) Price for Mc Donald product decrease due to promotion 1+1.

d) Mc Donald introduces Durian Mc flurry in Malaysia outlet for Durian fan.

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 Chapter 2: Demand, Supply & Market Equilibrium

5. Shows dramatically effect of each of the following situations on the demand curve for green tea.
(10 points)

a) The effect of demand curve of green tea if coffee is banned.

b) Price of green tea decrease.

c) Economic in Malaysia is in recession.

d) Scientific researchers found that drinking green tea improves health.

e) An increase in the quantity of green tea.

6. Using demand analysis, explain the effect to the equilibrium output and price when the
following situation occurs:
(10 points)
a) Consumer decide the large car are fashionable

b) Several new companies enter the furniture home industry

c) The price of Samsung Smartphone fall. What is the effect on the market of Huawei Smartphone?

d) Government increase the tax imposition on luxury cars

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 Chapter 2: Demand, Supply & Market Equilibrium

7. Answer the question below.

Price (RM) Quantity demanded (units) Market demand
Consumer A Consumer B Consumer C (units)
1 40 42 38
2 32 36 32
3 24 30 26
4 16 24 20
5 8 18 14
6 0 12 8

a) Define demand.
(2 points)

b) Calculate the market demand on the above table.

(2 points)

c) Sketch the demand curve based on the answer on (b).

(2 points)
d) List FOUR (4) factors determinants demand.
(4 points)

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 Chapter 2: Demand, Supply & Market Equilibrium

8. Answer the question below.

Price (RM) Quantity supplied (units) Market supply
Ali Bakar Alisha (units)
1 0 12 8
2 8 18 14
3 16 24 20
4 24 30 26
5 32 36 32
6 40 42 38

a. Define the law of supply.

(2 points)
b.Calculate the market supply on the above table.
(2 points)
c. Sketch the supply curve based on the answer on (b).
(2 points)
d. Why the supply curve is upward sloping?
2 points)
e. List TWO (2) factors determinants supply.
(2 points)

23

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9. The diagram below shows the demand and supply curve for corn oil.

Price (RM per unit)

S0

D1
5
D0

Quantity (unit)
40 45 55

Based on the diagram above, answer the following questions.

a) Define market equilibrium (1 point)

b) State equilibrium price and quantity (1 point)

c) Assume the government sets the price at RM5 per kg. What is this price control known as? How
much is the shortage or surplus in the market? (2 points)

d) If the government set the price of corn oil at RM7.

i. What will be the effect on consumer expenditure? (2 points)

ii. How many units will the government have to buy from the corn oil suppliers? (2 points)

e) State the two (2) factors that shift demand curve from D 0 to D1 (2 points)

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 Chapter 2: Demand, Supply & Market Equilibrium

10. Table 2 and Table 3 are the demand and supply schedules for Mangosteen in Marudi.

Table 2 Table 3

Supply Demand

Price (RM) Quantity (kg) Price (RM) Quantity (kg)

5.00 50 5.00 300

6.00 100 6.00 250

7.00 150 7.00 220

8.00 200 8.00 200

9.00 250 9.00 100

10.00 300 10.00 50

i. On a graph paper plot the demand and supply curves and label them correctly.

(3 points)

ii. Determine the equilibrium price and quantity.

(2 points)

iii. If the government fixed the price at RM6.00 per kilogram, what is this legal price called?

Calculate the amount and determine whether there is a surplus or shortage.

(3 points)

iv. On a separate diagram, show new equilibrium price and quantity of the income of

consumers in Marudi increases and Mangosteen is a normal good.

(2 points)

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11. The following are hypothetical demand and supply schedules for ‘ikan bawal’ in Bandar Baru
Bangi.
Price (RM/Kg) Quantity demanded Quantity supplied New quantity supplied
8.00 1500 4500
7.50 2000 3500
7.00 2500 2500
6.50 3000 1500
6.00 3500 500

a) Define the law of demand and law of supply for ‘ikan bawal’. (2 points)

b) Determine the equilibrium price and quantity (2 points)

c) The government give fisherman incentive in order to catch more fish. As a result, the number of fish
cashed by fisherman increase by 500 kg at every price level.

i. Calculate the new quantity supplied

ii. Draw the effect of the subsidies on the market for ‘ikan bawal’

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 Chapter 2: Demand, Supply & Market Equilibrium

12. The following table shows the demand and supply schedule for coconut.
Price (RM/unit) Quantity demanded (units) Quantity supplied (units)
1.00 150 600
0.80 250 400
0.60 300 300
0.40 450 200
0.20 500 100

a) Define the law of supply (2 points)

b) State the equilibrium price and quantity (2 points)

c) Assume that the legal price for coconut is established at RM0.40.this legal price is called
______________________ (1 point)

d) Assuming the government has decided to change the legal price of coconut from RM0.40 to RM1.00
per unit.

i. Shows whether there would be a problem of shortage or surplus and how much it would be.

ii. Name the price control imposed by the government.

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13. The diagram below shows the market demand and supply of Harum Manis Mangoes in Perlis
before and after government-imposed tax of RM10 per unit.
Price (RM/Kg)

Supply (S1)

30
Supply (S0)
28

22
T
Demand

Quantity (Kg)
100 200

a) What are the equilibrium price and quantity before tax?

(2 points)
b) What are the equilibrium price and quantity after tax
(2 points)
c) Find the value of T
( 1 point)

d) Calculate the amount:

i. Tax passed on consumer (2 points)

ii. The tax passed on producer

(2 points)

iii. Tax received by the government

( 2 points)
e) Why the consumer has to bear more burden of tax than the producer
( 2 points)

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 Chapter 2: Demand, Supply & Market Equilibrium

14. Based on the diagram below, answer the question that follows:
Price (RM)

Supply (S1)

Supply (S0)
45

22
17

Demand

Quantity (Kg)
100 200

a) Before the tax was imposed by the government, what was the price paid by the consumer?

b) After the sales tax was imposed, what was the price paid by the consumer?

c) What was the tax rate imposed by the government for a pair of shoes?

d) Calculate the total amount of tax burden paid by the consumer?

e) Calculate the total tax collected by the government?

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 Chapter 2: Demand, Supply & Market Equilibrium

15. The graph below shows the market equilibrium for chocolate, before and after the indirect tax
of RM3.00 per kg.

a) State the price and quantity before and after imposed tax government impose the tax
(2 points)

b) State the amount of X

(2 poin
c) Calculate:
(6 points)
i. Total tax paid by the consumer

ii. Total tax paid by the producer

iii. Total tax received by the government

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 Chapter 2: Demand, Supply & Market Equilibrium

PART B: SHORT ESSAY

QUESTION 1

a. Explain THREE (3) types of good in economics

b. Using an appropriate examples, explain FOUR (4) types of goods in Islamic economic
c. Explain the following concept:

i. Law of demand
ii. Law of supply
(5 points)

b. Using an appropriate diagram, explain the difference between increases in quantity demanded and
an increase in demand.
(10 points)

QUESTION 2

a. Explain TWO (2) determinants of demand

(5 points)
b. Explain why the demand curve is downward sloping.
(10 points)

QUESTION 3

a. Explain the difference between the change in quantity supply and a change in supply.
(5 points)

b. List FOUR (4) determinants of supply and briefly explain any TWO (2) factors.
(10 points)
QUESTION 5

a. Briefly explain the concept of following:

i. Maximum price
ii. Minimum price
(5 points)
b. Explain TWO (2) advantage for each maximum and minimum price
(5 points)

QUESTION 6

a. Explain the difference between:

i. Price ceiling
ii. Price floor
(5 points)
b. Explain TWO (2) disadvantage for each maximum and minimum price
(5 points)

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 Chapter 2: Demand, Supply & Market Equilibrium

QUESTION 7

a. Explain the distribution of tax when the demand curve is more elastic than the supply
(5 points)
b. Explain how equilibrium price is determined in the market
(5 points)

QUESTION 8

a. Explain the effect of indirect tax on equilibrium price and quantity.

(5 points)
b. Explain the effect of the subsidy on equilibrium price and quantity.
(5 points)

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