Market equilibrium

Practice

Recall it first, then use it — testing yourself builds the memory, where rereading the notes above only feels easier.

Recall and application shuffled together — you have to work out what each item wants before you can answer it, which is the part the exam actually tests. Both kinds feed the same spacing schedule, so anything you miss comes back sooner.

Say the answer out loud before flipping — that attempt is where the learning happens, even when you get it wrong.

Exam-style only. Instant feedback, shuffled each attempt, best score saved on this device.

What actually comes up

Every real paper is built around a GOVERNMENT INTERVENTION in a market — an indirect tax, a tariff, a subsidy, a price ceiling or floor, or a quota — shown on a full welfare graph, three times per paper. The shift/elasticity basics above are the foundation, but the actual questions are always "show the change in CS, PS, government revenue-or-cost, and deadweight loss on the graph, then explain who is affected and what happens to allocative efficiency."

Across 4 years

The pattern — what to prepare

The 2022 paper ↗ Marking schedule ↗

Question One — A subsidy on electric vehicles vs a tax on petrol vehicles

The Government could encourage EV uptake with a subsidy for electric vehicles, or an indirect tax on petrol vehicles.

• a Use the labels from Graph One (the EV subsidy) to identify the change in consumer surplus, change in producer surplus, total cost to the Government, and deadweight loss. Achieved
• b Use the labels from Graph Two (the petrol tax) to identify the change in consumer surplus, change in producer surplus, total tax revenue, and deadweight loss. Achieved
• c Compare and contrast the impacts of the subsidy on electric vehicles with the tax on petrol vehicles, on consumer surplus, allocative efficiency, and the Government, and explain why combining the two policies might be more financially sustainable. Excellence

Question Two — A maximum price on rental housing

Rents have risen as the supply of rental housing has fallen; the Government could impose a maximum price (rent control).

• a(i) Show the original and new equilibrium price and quantity on Graph Three, and the shortage or surplus resulting from the decrease in supply at the original price. Achieved
• a(ii) Explain how equilibrium would be restored in the rental housing market, referring to the relevant labels and the concept of market forces. Merit
• b Show a maximum rent control on Graph Four and complete a table of consumer surplus, producer surplus, and deadweight loss before and after the control. Merit
• c Compare and contrast the impacts of the maximum rent control on consumer surplus, producer surplus, and allocative efficiency. Excellence

Question Three — Removing a tariff on an elastic vs an inelastic good

Import tariffs of 5% and 10% apply to some goods; removing them increases overall efficiency, but by different amounts depending on elasticity.

• a Use the labels from Graph Five (elastic good) and Graph Six (inelastic good) to complete a table of the increase in consumer surplus, decrease in producer surplus, loss of Government tariff revenue, and gain in allocative efficiency for each. Achieved
• b Compare and contrast the impact on producers and consumers of removing the tariff on the price-elastic good, referring to consumer surplus, producer surplus, and the Government. Merit
• c Explain why removing tariffs increases allocative efficiency regardless of elasticity, AND why removing tariffs from elastic goods produces a larger efficiency gain than from inelastic goods. Excellence

The 2025 paper ↗ Marking schedule ↗

Question One — Indirect tax and elasticity of demand

An indirect tax (e.g. an excise duty) discourages consumption and raises government revenue. Graph One shows the tax on a good with inelastic demand; Graph Two shows it on a good with elastic demand.

• a Complete Table One using the labels in Graph One and Graph Two to identify the changes in consumer surplus, producer surplus, tax revenue, and deadweight loss for both the inelastic and elastic cases. Achieved
• b(i) Explain why the impact on consumer surplus is greater when demand is inelastic compared to when it is elastic, including the definition of inelastic demand and a reason for demand being inelastic. Merit
• b(ii) Explain whether the Government would place the indirect tax on an elastic or an inelastic good, if its objective was to generate revenue, and if its objective was to discourage consumption. Excellence

Question Two — Tariffs

New Zealand generally favours low tariffs, but some goods (e.g. textiles and clothing) stay protected. Graph Three shows the NZ market for textiles and clothing at the world price Pw, before a tariff.

• a On Graph Three, show the effect of imposing a tariff: the new quantity demanded (Qd) and supplied (Qs), and the new consumer surplus, producer surplus, tariff revenue, and deadweight loss. Achieved
• b Explain the impact of the tariff on consumers, on producers (including the difference between NZ producers and importers), on the Government, and on allocative efficiency. Excellence

Question Three — Subsidy

A subsidy keeps medicines affordable; without it the market would face a shortage at the current price P1. Graph Four shows the market for medicines.

• a(i) On Graph Four, use dotted lines to show the shortage that would occur at price P1, labelling the shortage and the corresponding Qd and Qs. Achieved
• a(ii) At the current price P1, explain how equilibrium would be restored, referring to the relevant labels on Graph Four and the concept of market forces. Merit
• a(iii) Add a new curve showing the effect of a subsidy that removes the shortage; shade and label the total cost of the subsidy to the Government; show the price producers receive after the subsidy (Pp); mark the deadweight-loss area A, B, C. Merit
• b Explain the impact of the subsidy on consumers, on producers, on the Government (including how it justifies continued funding despite funding pressures), and on allocative efficiency. Excellence

The 2024 paper ↗ Marking schedule ↗

Question One — Increase in the world price

The world price rises for a product New Zealand exports. Graph One shows the NZ market before and after the increase.

• a(i) Complete Table One using the labels in Graph One to identify the price NZ consumers pay, the price NZ producers receive, and the quantities consumed and sold, before and after the increase. Achieved
• a(ii) Complete Table Two using the labels in Graph One to identify consumer surplus, producer surplus, and deadweight loss, before and after the increase. Achieved
• a(iii) Explain why the world price is shown as a horizontal line. Merit
• b Explain in detail the impacts of the world-price increase on New Zealand consumers and on New Zealand producers (exporters). Merit
• c Explain the impact of the increase in the world price on allocative efficiency. Excellence

Question Two — Indirect tax on alcohol

A $2 per drink indirect tax is imposed on alcoholic drinks, partly to discourage consumption. Graph Two shows the market at its original equilibrium (Pe, Qe).

• Indirect tax = $2 per drink

• a(i) Complete Graph Two by adding and labelling the new supply-plus-tax curve, the new equilibrium price (P1) and quantity (Q1), and the resulting shortage or surplus at the original price Pe. Achieved
• a(ii) Explain how equilibrium would be restored in the market for alcoholic drinks following the tax increase, referring to figures/labels from Graph Two and the concept of market forces. Merit
• b Using figures from Graph Two, calculate the change in consumer surplus, the change in producer surplus, total tax revenue, and the deadweight loss. Merit
• c Explain the impact of the $2 per drink indirect tax on consumer surplus, producer surplus, and allocative efficiency. Excellence

Question Three — Maximum price control and elasticity

To ease the cost-of-living crisis, the Government could impose a maximum price on grocery items. Graph Three shows the control on an item with inelastic demand; Graph Four shows it on an item with elastic demand.

• a(i) Complete Table Three using the numbers in Graph Three and Graph Four to identify consumer surplus and producer surplus, before and after the maximum price control, and any deadweight loss, for both cases. Achieved
• a(ii) Define price elasticity of demand and explain one reason why an item might be elastic. Merit
• b Compare and contrast the impact the maximum price control might have on consumers, producers, and allocative efficiency, referring to Graph Three and Graph Four. Excellence

The 2023 paper ↗ Marking schedule ↗

Question One — Impact of a subsidy

Public transport fares were half-price under a temporary subsidy; ending it risks losing gains in changed transport behaviour. Graph One shows the market for public transport with the subsidy (S + subsidy).

• a Use the labels from Graph One to identify the change in consumer surplus, the change in producer surplus, the total cost of the subsidy, and the deadweight loss. Achieved
• b(i) Compare and contrast how the subsidy impacts consumers and producers. Merit
• b(ii) Explain how the subsidy impacts the Government, and its plan for emissions reduction. Merit
• b(iii) Explain how the subsidy impacts allocative efficiency, and why this change in efficiency occurs. Excellence

Question Two — Restricting retailers, and an indirect tax

To reduce youth vaping uptake, the Government could restrict the number of retailers selling vaping products. Graph Two shows the market for vaping products at its original equilibrium (Pe, Qe).

• a(i) Complete Graph Two by adding and labelling a new curve showing the decrease in retailer numbers, the new equilibrium price (P1) and quantity (Q1), and the resulting shortage or surplus at the original price Pe. Achieved
• a(ii) Explain, in detail, how equilibrium would be restored following the decrease in retailer numbers, referring to the relevant labels from Graph Two and the concept of market forces. Merit
• c Compare and contrast the impact of the two interventions — restricting retailers, and an indirect tax — on allocative efficiency. Excellence

Question Three — Quota and minimum price control

To limit energy-drink consumption, the Government could impose a quota of 3 million cans a year. Graph Four shows the market at its original equilibrium (Pe, Qe) and the new equilibrium under the quota (Pq, Qq).

• Quota = 3 million cans/year

• a(i) On Graph Four, show the impact of the quota by shading the new consumer surplus, the new producer surplus, and any deadweight loss. Achieved
• b Explain in detail the impact the quota and a minimum price control might have on consumers, producers, and allocative efficiency. Excellence

The base concepts (shift vs movement, PED/YED/XED, CS/PS) are necessary but not sufficient on their own — every real paper wraps them around a named government intervention and asks you to read the welfare consequences off a graph you partly build yourself.

Past exams & resources

⏱ Timed opens the paper and starts a countdown matching the exam length. Official NZQA PDFs. If a link 404s, that year’s paper may sit under a slightly different code: browse the NZQA subject page.