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Odev Supply and Demand

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59 views6 pages

Odev Supply and Demand

Uploaded by

xKinqSlayer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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SUMMARY DEMAND

1. A market’s demand curve shows the quantity of a


product a consumer is willing and able to purchase at
various prices.

2. If the price of a good changes, move along an existing


demand curve for that good. A price change does not shift
the curve. This is called a change in quantity
demanded.

3. A nonprice change in demand, one of the determinants


of demand (remember the SPICE shifters), shifts the
demand curve. Shift to the right for an increase or left for a
decrease. This is called a change in demand.

4. The law of demand states that when the price of a


product increases, the quantity demanded decreases, and
vice versa.

5. The demand curve is downward sloping due to the


diminishing marginal utility, income, and substitution
effects.

SUPPLY
1. A market’s supply curve shows the quantity of a
product a producer is willing and able to offer for sale at
various prices.

2. If the price of a good changes, move along the existing


supply curve of the good. A price change does not shift the
curve. This is called a change in quantity supplied.

3. A nonprice change in supply, one of the determinants of


supply (remember the ROTTEN shifters), shifts the supply
curve. Shift to the right for an increase or left for a
decrease. This is called a change in supply.
4. The law of supply states that when the price of a
product increases, the quantity supplied increases and vice
versa.

5. The supply curve is upward sloping because as the price


of a good rises, producers will have a greater incentive to
produce more.
EQUILIBRIUM
1. The steps for solving supply and demand problems are
as follows: Is it the supply or demand curve affected? Is it
an increase or a decrease? Just shift it!

2. The equilibrium price is the market-clearing price


where the curves intersect. Here there is no surplus or
shortage.

3. Only at this one price will the quantity demanded be


equal to the quantity supplied. The quantity at this price is
called the equilibrium quantity.

4. At any price above the equilibrium price, there is a


surplus as quantity supplied is greater than quantity
demanded. Competitive market forces will cause the price
to decrease.

5. At any price below the equilibrium price, there is a


shortage as quantity demanded is greater than the quantity
supplied. Competitive market forces will cause the price to
increase.

Multiple-Choice Review Questions

1. If the government subsidizes the production of corn,

(A) the demand curve will shift to the left.


(B) the demand curve will shift to the right.
(C) the supply curve will shift to the left.
(D) the supply curve will shift to the right.
(E) the quantity supplied will increase along a fixed supply
curve.

2. If consumers are advised that multigrain bread will


substantially lessen the risk of cancer, which of the
following will happen in the market for multigrain bread?

(A) The demand curve will shift to the left, decreasing the
price of multigrain bread.
(B) The supply curve will shift to the left, increasing the
price of multigrain bread.
(C) The demand curve will shift to the right, increasing the
price of multigrain bread.
(D) The supply curve will shift to the right, decreasing the
price of multigrain bread.
(E) None of the above.

3. Assume the supply of bananas decreases due to rising


costs of production while demand increases due to
consumer preferences. What will happen to the new
equilibrium price and quantity?

Price Quantity
(A) Increase Increase
(B) Increase Indeterminate
(C) Decrease Decrease
(D) Decrease Increase
(E) Indeterminate Increase
Use the figure below to answer questions 4 and 5.

4. The figure shows the market for fidget spinners. Which of


the following is true at $30?

(A) There is a shortage of 60 fidget spinners.


(B) There is a shortage of 40 fidget spinners.
(C) There is a surplus of 60 fidget spinners.
(D) There is a surplus of 40 fidget spinners.
(E) The market is in equilibrium with no surplus or shortage.
5. Which of the following is true if the government sets a
price ceiling at $30? (Note that the price ceiling is set
above the equilibrium price.)

(A) There is a shortage of 60 fidget spinners.


(B) There is a shortage of 40 fidget spinners.
(C) There is a surplus 60 fidget spinners.
(D) There is a surplus of 40 fidget spinners.
(E) The market is in equilibrium with no surplus or shortage.

6. Suppose that the demand for sugar does not change


while at the same time the supply of sugar decreases. One
result will be that there will be less sugar bought and sold
in the market. How can this occur if there was no shift in
demand?

(A) It cannot occur without a shift in the demand curve.


(B) There was a decrease in the quantity demanded as the
market found a new (higher) equilibrium price.
(C) The market was in disequilibrium.
(D) The slope of the demand curve changed.
(E) There was a decrease in the quantity supplied as the
market found a new (higher) equilibrium price.

7. Which of the following would cause the demand for good


X to decrease?

(A) Producers of good X find that the cost of producing Y


has increased dramatically.
(B) The workers who produce good X receive a large
increase in wages.
(C) Goods X and Y are substitutes, and the government
imposes a tax on good Y.
(D) Good X is a normal good, and the government lowers
income taxes by 10%.
(E) Good X is an inferior good, and the government
decreases income taxes by 15%.
8. What would happen to the market for avocados if a new
study claims eating avocados improves heart health and
the wages increase for workers who grow avocados?
Demand Supply Price
Quantity
(A) Increase Increase Increase Increase
(B) Decrease Increase Decrease
Indeterminate
(C) Increase Decrease Increase
Indeterminate
(D) Decrease Increase Indeterminate Increase
(E) Increase Decrease Increase Increase

Free-Response Review Questions

1. For each of the following simultaneous changes in


demand and in supply for a product, indicate the effect on
equilibrium price and equilibrium quantity.

(a) An increase in demand and an increase in supply


(b) A decrease in demand and a decrease in supply
(c) An increase in demand and a decrease in supply

2. Assume the market for leather baseball gloves is in


equilibrium.

(a) Draw a correctly labeled graph of the market for leather


baseball gloves, labeling the price PE and the quantity QE at
equilibrium.

(b) Now assume the price of leather increases and it is an


input used to produce baseball gloves. Using a correctly
labeled supply and demand graph, show how this event
affects the new equilibrium price and quantity for baseball
gloves, labeled P2 and Q2.

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