Grade 12 Economics Examination : Demand and Supply Curves

Based on the provided demand and supply graph, select the correct answer for each of the following questions.

1. Refer to the graph. What type of change in supply is shown by the shift from S₀ to S₁?

A. A decrease in supply (shift to the left)
B. An increase in supply (shift to the right)
C. A movement along the supply curve
D. No change in supply

2. As a result of the shift from S₀ to S₁, what happens to the equilibrium price?

A. Price decreases from P₀ to P₁
B. Price increases from P₁ to P₀
C. Price remains constant
D. Price drops to zero

3. Which of the following best describes the change in demand as the market moves to the new equilibrium?

A. The demand curve shifts to the right
B. The demand curve shifts to the left
C. Quantity demanded increases along the unchanged demand curve (D₀)
D. Demand decreases completely

4. If the rightward shift in supply is NOT caused by a decrease in input prices or higher producer income, what is the most likely cause?

A. An increase in consumer income
B. An increase in production taxes
C. A decrease in the number of suppliers
D. An improvement in production technology

5. Following the rightward shift of the supply curve, what happens to the equilibrium quantity in the market?

A. Equilibrium quantity decreases from Q₁ to Q₀
B. Equilibrium quantity increases from Q₀ to Q₁
C. Equilibrium quantity remains unchanged at Q₀
D. Equilibrium quantity drops to zero

📖 View Solutions here

Question 1

Correct Answer: B. An increase in supply (shift to the right)

Explanation: A rightward shift of the supply curve (from S₀ to S₁) represents an increase in total market supply. This indicates that producers are willing and able to offer more of the good or service at every price level.

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Question 2

Correct Answer: A. Price decreases from P₀ to P₁

Explanation: When the supply curve shifts to the right while demand remains constant, an initial surplus is created at the original price P₀. To clear this surplus, market forces push the equilibrium price downward to P₁.

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Question 3

Correct Answer: C. Quantity demanded increases along the unchanged demand curve (D₀)

Explanation: The demand curve (D₀) itself does not shift because the initial change originates on the supply side. As the price falls from P₀ to P₁, consumers purchase more, which is represented by movement along the existing demand curve (an increase in quantity demanded).

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Question 4

Correct Answer: D. An improvement in production technology

Explanation: Non-price determinants that cause supply to shift to the right include lower input costs, higher subsidies, lower taxes, or advancements in production technology. Technological improvements make production more efficient, encouraging suppliers to produce more at any given price level.

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Question 5

Correct Answer: B. Equilibrium quantity increases from Q₀ to Q₁

Explanation: Following the rightward shift of the supply curve, the new equilibrium point moves down and to the right along the demand curve, resulting in an expanded market equilibrium quantity from Q₀ to Q₁.

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Understanding Demand and Supply curves is a foundational requirement in Economics that Papua New Guinea (PNG) students must master to succeed in their Grade 10 and Grade 12 National Examinations. These diagrams visually demonstrate how market forces interact to determine the equilibrium price and quantity of goods and services. Students need to confidently distinguish between a movement along a curve—caused strictly by a change in the product's own price—and a shift of the entire curve, which is driven by non-price determinants like changes in technology, consumer preferences, input costs, or government policies. By learning how to read axis labels, identify equilibrium points, and track directional shifts (such as a rightward supply shift lowering prices while increasing quantity), PNG students gain both the analytical skills necessary to score top marks on their national exam papers and a practical understanding of how real-world markets operate.