Trace how changing market conditions affect price
Use demand and supply shifts to explain the direction of price, quantity and sales changes.
Cambridge IGCSE Economics 0455 / IGCSE (9–1) Economics 0987, 2027–2029 Version 1. Apply each model to the stated evidence and qualify conclusions where effects depend on context. Practice is original and self-checked; it is not a Cambridge paper, mark scheme or official grade.
Before you begin
- No prior economics study is assumed. Read the scenario for the decision-maker, the market or economy involved, the time period and the evidence supplied.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Supply increases while demand stays fixed. What normally happens to equilibrium price?
What you will learn
- Explain price changes caused by shifts
- Use demand and supply diagrams
- Distinguish price, quantity and sales effects
Start with the curve that changed
A change in demand or supply shifts its curve and creates a new equilibrium. Higher demand, with supply unchanged, tends to raise equilibrium price and quantity; higher supply, with demand unchanged, tends to lower price and raise quantity.
When both curves change, the direction of equilibrium price or quantity can be uncertain. Identify each shift, then compare their relative size rather than guessing.
Sales depend on price and quantity
Sales revenue is price multiplied by quantity sold. A market price change can affect both, and the final revenue effect depends on the demand response and other conditions.
A diagram should label axes, original curves, the shift and both equilibrium points. Use it to explain the change, not as a substitute for a written chain of reasoning.
Pause and explain
Demand rises and supply falls at the same time. What can be said about price?
Worked example
A popular new use increases demand for electric bicycles while supply is unchanged. Predict the new equilibrium.
Show the worked solution
- Demand shifts right.
- At the old price, a shortage develops.
- The new equilibrium has a higher price and quantity.
Answer Demand rises, so equilibrium price and quantity are likely to increase. The actual change depends on the size of the shift and the supply response.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A cold snap reduces the supply of fresh fruit. Explain the likely change in equilibrium price and quantity, other things equal.
Give me a hint
Shift supply left, then compare with demand.
Compare my reasoning
- Less fruit is available at each price.
- Demand is unchanged.
- The new equilibrium has higher price and lower quantity.
Supply shifts left. Equilibrium price is likely to rise and quantity to fall, assuming demand and other conditions do not change.
Look for these in your work
- Supply direction stated
- Demand held fixed
- Price and quantity predicted
A price rise cuts the number of units sold from 100 to 80, while price rises from $5 to $6. Calculate sales revenue before and after.
Give me a hint
Multiply price by quantity in each period.
Compare my reasoning
- Before: $5 × 100.
- After: $6 × 80.
- Compare the totals.
Revenue falls from $500 to $480 even though price rises. The lower sales quantity more than offsets the $1 higher price in this example.
Look for these in your work
- Before revenue correct
- After revenue correct
- Change explained
A festival increases demand for hotel rooms just as a new hotel opens. Explain why the effect on room prices is uncertain.
Give me a hint
Compare the price pressures from each curve shift.
Compare my reasoning
- Higher demand tends to raise equilibrium price.
- Greater hotel supply tends to lower it.
- The net price change depends on the relative size of both shifts.
Demand growth puts upward pressure on price, while added capacity puts downward pressure on it. Without information about the relative shifts, the net price change is uncertain; equilibrium quantity is likely to rise if both shifts are outward.
Look for these in your work
- Demand effect stated
- Supply effect stated
- Uncertainty based on relative size
Common mistakes
- Predicting price from a curve without stating what shifted
- Assuming both price and quantity always move in the same direction
- Equating more sales with higher revenue without checking price
What can you explain now?
Why can revenue move differently from price?
Compare with the explanation
Quantity sold changes too
Revenue depends on both price and sales quantity.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Why can revenue move differently from price?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.