Homework 3.2 Shifts in Demand and Supply for Goods and Services

True or false?A rise in the price of DVD players will increase the demand for DVDs. Well done! You got it right. True False

False DVD players and DVDs are clearly complementary goods. Thus, an increase in the price of one will decrease the demand for the other.

Severe hailstorms have caused significant damages in car windshields. How does this impact the demand for windshields? In the graph below, show how demand for windshields is impacted by shifting the appropriate curve.

After the hailstorms, many car owners need to replace their windshields. Demand for windshields rises, represented by a rightward shift in demand. A rightward shift in demand means that at any price, the quantity demanded will be higher than it was before.

Apple announces that a new iPhone will be released in the next six months. In the graph below, show how demand for Apple's current model of iPhone is impacted by this announcement by shifting the appropriate curve. Assume that if consumers are in the market for iPhone, they strongly prefer the new model.

Consumers are expecting that a new iPhone will be released in the near future, so they do not want to buy the current iPhone. Due to waiting to buy the new version of iPhone, buyers' demand for the iPhone currently decreases or shifts leftward. A leftward shift in demand means that at any price, the quantity demanded will be lower than it was before.

A rainy season improves the weather conditions for growing tomatoes in the Southeast. Demonstrate the impact on the supply of tomatoes on the graph below by shifting the supply curve in the appropriate direction.

Especially good weather for agricultural products shifts the supply curve for those products to the right. In this case, ideal weather conditions for growing tomatoes causes the supply curve to shift to the right. A rightward shift in supply means that at every given price, the quantity supplied is higher.

S'mores are snacks made out of marshmallows, graham crackers, and chocolate bars. If the price of marshmallows falls, what is likely to happen to the demand for graham crackers in a s'more loving community? In the graph below, show how demand for graham crackers is impacted by shifting the appropriate curve.

Graham crackers, marshmallows, and chocolate bars are complementary goods. If the price of one complement falls (marshmallows), the demand for other complements will increase (graham crackers and chocolate bars), as they are all consumed together. A rightward shift in demand means that at any price, the quantity demanded will be higher than it was before.

New technology introduced to the oil industry has made drilling for oil much faster and more cost-effective. On the graph below, demonstrate the impact on the supply of oil by shifting the appropriate curve.

Increases in technology will make production more efficient, both in time and cost. This will result in an increase in supply, which can be shown as a rightward shift in the supply curve. A rightward shift in supply means that at every given price, the quantity supplied is higher.

Papa's Italian Joint has a promotion for $1 off any large specialty pizza. Ernie's Shop does not have any promotions that reduce the price of pizza. How does the decrease in price of Papa's Italian Joint pizza affect the demand for Ernie's Shop pizza? In the graph below, show how demand for Ernie's Shop pizza is impacted by shifting the supply or demand curve in the appropriate direction.

Papa's Italian Joint pizza and Ernie's Shop pizza are substitutes. If the price of one substitute falls, the demand for the other will decrease or shift leftward. A leftward shift in demand means that at any price, the quantity demanded will be lower than it was before.

Severe hailstorms have damaged several factories that make paint, forcing them to close down for several months. On the graph below, demonstrate the impact on the supply of paint by shifting the appropriate curve.

Poor natural conditions for production, such as damaging storms, decrease supply, demonstrated by a leftward shift. A leftward shift in supply means that at every given price, the quantity supplied is lower.

Suppose there is a soda tax levied on producers to curb obesity. What should a reduction in the soda tax do to the supply of sodas? Select the correct answer below: Producers are likely to supply more sodas. Producers are likely to supply less soda. Producers will not change the amount of soda supplied. Taxes have no effect on the functioning of free markets so supply will not be affected.

Producers are likely to supply more sodas. Businesses treat taxes as a production cost. When supplying sodas becomes more expensive for producers due to the introduction of a soda tax, they will most likely decrease the amount they are supplying. In reverse, reducing the soda tax will reduce the cost of production from the businesses' point of view and cause them to increase the quantity produced at any given price.

You are responsible for setting prices of finished clothing items at a major textile manufacturer. In the past year the price of cotton, a critical input, has increased by 20%. What is the likely result? Select the correct answer below: Supply of clothing will remain unchanged. The change in supply is unknown. Supply of clothing will increase. Supply of clothing will decrease.

Supply of clothing will decrease. When a firm faces an increase in production costs, its profits will decline at the given selling price, causing the firm to reduce production and quantity supplied.

All other things unchanged, what happens to the demand curve for organic pasta if there is a decrease in family income? For this example, consider organic pasta a normal good.

The demand curve will shift to the left. A decrease in family income will cause the demand curve to shift to the left if organic pasta is a normal good but to the right if organic pasta is an inferior good.

Tea and coffee both contain caffeine and are often consumed in place of one another. You are the director of a large coffee plantation. In recent years, poor tea harvests have devastated tea production and significantly increased prices. How would you expect the demand for coffee to change, and why? Select the correct answer below: The demand for coffee should increase because the two goods are complements. The demand for coffee should increase because the two goods are substitutes. The demand for coffee should decrease because the two goods are complements. This is highly unlikely to have any effect on the demand for coffee.

The demand for coffee should increase because the two goods are substitutes. Tea and coffee, which both contain caffeine, are often considered substitutes. If they are substitutes, then we would expect some tea drinkers to respond to the price rise by entering the coffee market and shifting demand to the right.

Suppose the price of beer increases. What would you expect to happen to the demand for wine? Assume that beer and wine are substitutes. Select the correct answer below: The demand for wine would not change and there would be no movement along the demand curve for wine. The demand for wine would not change, but there would be a movement up along the demand curve for wine. The demand for wine would decrease. The demand for wine would increase.

The demand for wine would increase. Because wine and beer are substitute goods, an increase in the price of one, increases the demand for the other good.

When it comes to watching movies, consumers have moved away from DVDs and into streaming. What has happened to the demand for DVD players over this time? Select the correct answer below: The demand has decreased. The demand has increased. The demand has remained stagnant. There is not enough information to know what has happened to demand.

The demand has decreased. As consumer preferences change regarding electronics, demand for different products shifts. In the case of DVD players, demand has decreased (shift to the left) as consumers have moved away from watching DVDs in favor of streaming movies online.

Workers at factories building machinery go on strike. Which of the following describes how the supply of machines will be affected? Select the correct answer below: The supply of machines will remain unchanged. The supply of machines will decrease. The supply of machines will increase. The effects are unknown.

The supply of machines will decrease. When workers go on strike, there are not people available to produce the goods. Either the goods do not get produced, or the firm has to hire new workers, which raises the cost of production. This in turn decreases the supply of machines.

Workers at factories building machinery go on strike. Which of the following describes how the supply of machines will be affected? The supply of machines will remain unchanged. The supply of machines will decrease. The supply of machines will increase. The effects are unknown.

The supply of machines will decrease. When workers go on strike, there are not people available to produce the goods. Either the goods do not get produced, or the firm has to hire new workers, which raises the cost of production. This in turn decreases the supply of machines.

If there is a decrease in price for printers, what would we expect to happen to the demand for printer cartridges?

There will be an increase in demand for printer cartridges. Printers and printer cartridges are clearly complementary goods, so if the price of one decreases, then the demand for the other will increase.

In 2009, the worst recession in 80 years hit the United States, generally reducing household incomes. Despite this, profits and sales for certain enterprises such as McDonald's and Dollar General actually increased during this time. What is the most likely conclusion about the products sold by these stores?

They are inferior goods. Inferior goods would undergo an increase in demand as income falls, which fits the scenario described in the question for these firms.

The Manchurian Plain in Northeast China produces most of the country's major crops, such as soybeans and corn. In 2014, the plain experienced the most devastating drought in 50 years. On the graph below, demonstrate the drought's impact on the supply of crops by shifting the appropriate curve.

Unfavorable natural conditions, such as droughts, decrease the supply of agricultural products. shifting the supply curve to the left. A leftward shift in supply means that at every given price, the quantity supplied is lower.

When considering factors that shift demand curves, which of the following will decrease the market demand for a product? Select the two correct answers below. Select all that apply: a drop in the price of substitutes a rise in the price of complements a rise in income (for a normal good) a rise in the price of substitutes

a drop in the price of substitutes a rise in the price of complements A drop in the price of substitutes will decrease demand because people are likely to buy the more affordable product. A rise in the price of complements will decrease demand because people are likely to buy complements together.

Choose the answer that best defines a substitute good. Select the correct answer below: a good or service that is used because another is no longer in production a good or service that a consumer sees as the same or similar and can be used in place of another good or service a good or service that is better in quality than another good or service a good that is very often used in conjunction with another good or service

a good or service that a consumer sees as the same or similar and can be used in place of another good or service A substitute good is one that can be used in place of another good or service. Its substitution for another good has an effect on the demand curve for the original good.

When considering factors that shift demand curves, all of the following will decrease demand except _______________.

a rise in income (for a normal good) A rise in income (for a normal good) will increase demand because people will have more money to spend. For normal goods, higher income causes greater demand at every price.

Recently, the electronic cigarette industry has come under increased scrutiny from retailers. New legislation has been passed that will significantly lessen supply in the medium term, although it will take some time for the legislation to go into effect. Knowing what you know about factors that affect the demand curve, what would you anticipate the effect of this legislation will be on short-run demand for electronic cigarette products? Select the correct answer below: a significant rightward shift in the short-run demand as consumers stock up in anticipation of a shortage a significant leftward shift in the short-run demand as consumers exit the market little to no change in short-run demand followed by significant increase in demand later these regulations only affect the supply curve, not the demand curve

a significant rightward shift in the short-run demand as consumers stock up in anticipation of a shortage Consumer expectations of future price fluctuations can have an immediate impact on demand. If consumers anticipate a shortage or major price hike, then short-run demand will increase as consumers stock up on the product.

Which of the following factors would increase supply? Great work! That's correct. lower taxes on the cost of inputs an increase in the number of producers improvements in technology that reduce firm costs all of the above

all of the above All three factors mentioned increase supply. Lower taxes and improvements in technology lower production costs, resulting in increased supply. More producers allow more of the good to be produced.

Which of the following factors would not result in a change in the supply of automobiles? Select the correct answer below: an increase in the price of gasoline a decrease in the price of steel an increase in the price of glass all of these will result in changes in supply

an increase in the price of gasoline Changes in the price of inputs used to make an automobile (steel, rubber, and glass) would change the supply of automobiles. While gasoline is needed to run an automobile, it is not a factor of production. This would affect the demand for automobiles.

Which of the following cannot be an example of a pair of substitute goods? Select the correct answer below: tea and coffee tablets and laptop computers computers and computer mouses coal and natural gas

computers and computer mouses A substitute good is one that can be used in place of another good or service. The substitution of a good has an effect on the demand curve for the original good. When rents increase, individuals turn to home purchases as a substitute. When the price of coal increases, energy producers will turn to less expensive substitutes such as natural gas. For some people tea and coffee are substitutes and so are tablets and laptop computers. Computers and computer mouses are complementary goods - they are purchased together

If the price of gasoline increases by 50%, we would expect demand for automobiles to _____________. This occurs because the two goods are close ______________.

decrease, complements Gasoline and automobiles are clearly complements, so the increase in price of one is expected to decrease demand for the other.

As an economic wizard, you know that a bad recession will strike next year. Which one of the following industries should you choose to invest in to weather out the recession? Select the correct answer below: luxury cars dollar stores amusement parks casinos

dollar stores Dollar stores are the safest investment. There is likely to be significant substitution from higher-end retail stores to dollar stores, because people switch to lower-priced purchases as incomes fall.

As the strategy director for a mutual fund, you must choose a portfolio of stocks that maximizes returns for your customers. Recently, the economy has undergone significant economic growth, which is expected to continue. You have a choice of the four following industries in which to place your investors' money. In which two will you place the money to best fulfill your goal?

fancy restaurants high-end electronics The other two industries are either inferior goods or at least goods in which consumers are less likely to place marginal earnings as incomes increase. Both high-end electronics and fancy restaurants are considered normal goods as people increase spending on them when incomes improve.

Which of the following best completes the statement below? If the price of coffee falls by 90%, we would expect demand for coffee stirrers to _____________. This occurs because the two goods are close ______________.

increase; complements Coffee stirrers and coffee are clearly close complements, that is, the more coffee people consume, the more stirrers they require.

If the price of indoor cycling classes increase by $10, we would expect the demand for fitness classes to _______________. This is because indoor cycling classes and fitness classes are ______________. Select the correct answer below: increase; complements decrease; complements increase; substitutes decrease; substitutes

increase; substitutes Indoor cycling classes and fitness classes are substitutes, so if the price of one rises, the demand for the other will also rise.