1992-2-b-i

Hong Kong-made garments

Unit Price

St

S
Pt T

P
D

0 Quantity
Qt Q
If US imposes an import tax on Hong Kong-made garments, the cost of production for Hong
Kong-made garments will increase. The supply curve shifts upward from S to St. The
equilibrium price increases from P to Pt. The equilibrium quantity decreases from Q to Qt.

1992-2-b-ii
US-made garments
Unit Price

S
P’

D’

D
0 Quantity
Q Q’

Hong Kong-made garments and US-made garments are substitutes. The demand for US-made
garments increases as the price of Hong Kong-made garments increases. The demand curve shifts
rightward from D to D’. The equilibrium price increases from P to P’. The equilibrium quantity
increases from Q to Q’.

1993-4-c
 TV sets =consumers’ tax burden
Unit Price
=suppliers’ tax burden
St

S
Pt T

P
D

0 Quantity
Qt Q

1994-9-b-i
Japanese Cars
Unit Price

St

S
Pt T

P
D

0 Quantity
Qt Q
If U.S. imposes high tariffs on Japanese cars, the cost of production for Japanese cars will
increase. Its supply decreases. The supply curve shifts upward from S to St. The equilibrium
price increases from P to Pt. The equilibrium quantity decreases from Q to Qt.

1994-9-b-ii
U.S. car manufacturing workers
Wage Rate
 S
W’

D’

D
0 Quantity of Labour
L L’

Japanese cars and U.S. cars are substitutes. The demand for US cars increases as the price of
Japanese cars increases. The demand for U.S. car manufacturing workers increases as it is derived
from the demand of U.S. car. The demand curve shifts rightward from D to D’. The equilibrium
wage rate increases from W to W’. The employment increases from L to L’.

2004-9-c-i/ii
The elasticity of demand of for cars is greater than the elasticity of supply.

Unit price
S’
S
T

P2
P1 D

0 Quantity
Q2 Q1

= Buyers’ tax burden

= Sellers’ tax burden

= Net total sales revenue

2007-9-c-i/ii

Unit price
S’
S
T
 P2
P1 D

P0

0 Quantity
Q2 Q1

= Increase in total expenditure

= Decrease in total expenditure

= Decrease in sellers’ revenue (net of tax)

If Good X is subject to a per-unit sales tax, the cost of production for Good X will increase. Its
supply decreases. The supply curve shifts upward from S to S’. The equilibrium price increases
from P1 to P2. The equilibrium quantity decreases from Q1 to Q2. If the demand for Good X is
elastic, consumers’ total spending on Good X will decrease from P1 X Q1 to P2 X Q2. It is
because the percentage increases in price is less than the percentage decreases in quantity.

2009-11-c-i
Unit price S1
S2

P2

P1

D1 D2
0 Quantity

Indicate in the diagram:

- demand curve shifts to the right 1
- supply curve shifts to the right 1
- the new equilibrium price > the original equilibrium price 1

Verbal elaboration:
- more popular  increase in demand 1
- tax cut  increase in supply 1
- the increase in demand > the increase in supply 2

2010-1
Non-woven Reusable Bags
Indicate in the diagram:
- demand curve shifts to the right 1
- area 0P2FQ2 > area 0P1EQ1 1

Verbal elaboration:
- non-woven reusable bags are substitutes of plastic shopping bags 1
- the demand for non-woven reusable bags increases 1
- the total revenue increases 1

DSE-Sample Paper II-11-a

(i) The introduction of an effective minimum wage would raise the wage rate and result in a
decrease in the number of workers employed in that industry.

Indicate in the diagram:

W ↑and Q↓

(ii) The total wage earnings of the workers in that industry may rise or fall, depending on the
elasticity of demand.

If demand is elastic, the percentage increase in the wage rate is smaller than the percentage
decrease in the number of workers employed. The total wage earnings will decrease.

If demand is inelastic, the percentage increase in the wage rate is larger than the percentage
decrease in the number of workers employed. The total wage earnings will increase.

Indicate in the diagram:

G and L (irrespective of sizes)
DSE-2014-II-9-a
The condition is that the elasticity of demand for the good is smaller than the elasticity of supply.

Indicate on the diagram:

- Parallel upward shift of supply curve due to the per unit tax
- New P and Q
- Correct position of buyers’ and sellers’ tax burden
- Buyers’ burden > sellers’ burden

DSE-2016-II-10-c
Verbal elaboration:
– Tariff will result in a drop in supply.
– The situation: its demand is more elastic than its supply.

Indicate in the diagram:

– upward shift of the supply curve
– P increases and Q decreases
– Correct position of buyers’ burden and producers’ burden
– buyers’ burden < producers’ burden
Chinese Solar panels sold in European
Union
S1
Price ($) S0
t
P1 Buyer = buyers’ burden
Seller = producers’ burden
P0 Buyer
Seller
D

DSE-2017-II-11-a
0
Verbal elaboration: Q Q0 Quantity
The condition is that1 the elasticity of demand for the service is lower than the elasticity of its
supply.

Illustrate in the diagram:

– Parallel downward shift of supply curve due to the per unit subsidy
– Correct position of New Price (P1)
– Correct position of New Quantity (Q1)
– Correct position of producer’s benefit and consumer’s benefit
– Consumers’ benefit > producers’ benefit
Price
($)

S0
PB

A CB
P2 Ss
MC
P0 B
E0
P1 MB
E1

D Quantit
0 Q Q y
0 1

DSE-2019-II-12-a
(i) Illustrated in the diagram:
- S shifts up
- Lower total market value (net-of-tariff)
 S1
Price

S0

tariff

P1

P0 - loss in total market value (net-of-tariff)

P1-t

Quantity
Q1 Q0

(ii) China retaliates by charging tariffs on US goods. The value of export of

US to China will drop. If the effect on exports outweighs the effect on
imports, trade deficits will be enlarged.
DSE-2020-II-10-b

(i) Condition 1: Ed infinite

Verbal elaboration:
The demand is perfectly elastic. Even after the imposition of tariff, the market
price would not increase. It is because a tiny increase in price would drop the
quantity demanded to zero, so the supplier cannot shift the tax burden to the
consumers at all.

Illustrate in the diagram:

- horizontal demand curve
- supply curve shifts up

Condition II: Es zero

Verbal elaboration:
The supply is perfectly inelastic. After the imposition of tariff, the market price
would not increase. Given the quantity supplied is fixed, any increase in price
would only result in an excess supply.

Illustrate in the diagram:

- vertical supply curve
- indication of tax amount
(ii) - correct tax amount indicated in the corresponding condition.

DSE-2021-II-10-c
Verbal elaborations:
The provision of subsidy results in an increase in supply of masks. If the demand is inelastic,
the percentage decrease in price will be larger than the percentage increase in quantity and thus
the total expenditure on masks will drop.

Illustrate in the diagram:

– a downward shift of supply curve
– correct position of gain and loss
– loss > gain

Price

S0

S1

P0
Loss
P1
G
a
i
n D0
Quantity
0 Q0 Q1