Chapter 3: Supply and Demand

An increase in consumer preference for a good shifts the demand curve to the left. True False

False

The graph represents the market for soft drinks. Suppose that one of the industry's major suppliers of soft drinks has decided to exit the market to focus on its snack foods. At the same time, the average price of soft drinks has increased and the total amount of soft drink sales has increased. Manipulate the graph to demonstrate these changes in the market for soft drinks.

do not know.

If cream cheese and bagels are complements, then an increase in the price of cream cheese will __________ the demand for bagels. a) increase b) not change c) increase or decrease d) decrease

Decrease

Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks. Equilibrium price decreases. may increase or decrease, but it is impossible to know for sure. increases. remains constant. Equilibrium quantity may increase or decrease, but it is impossible to know for sure. remains constant. increases. decreases.

Equilibrium price = increases. Equilibrium quantity = increases.

Suppose the accompanying graph depicts a market for one pound bags of candy. Place the point labeled Excess Supply to show a price that would generate an excess supply (surplus). Then, determine the size of the excess supply. Excess Supply = _______________________ million bags

Excess supply = 6 million bags.

A relatively unexpected war in Eastern Europe leads to the disruption of the distribution of wheat onto the world market. At about the same time, a very popular new trend on social media is all about gluten-free wheat alternatives in baking which leads many bakeries to offer gluten-free alternatives instead of their traditional wheat based goods. Determine what happens to equilibrium price and quantity in the global market for wheat. The equilibrium price may increase, decrease or stay the same. will decrease. will stay the same. will increase. The equilibrium quantity may increase, decrease or stay the same. will decrease. will stay the same. will increase.

a. MAY INCREASE, DECREASE, OR STAY THE SAME. b. decrease

Suppose the accompanying graph depicts a market for one pound bags of candy. Place the line labeled Excess Demand at a price that would generate an excess demand (shortage). Then, determine the size of the excess demand. Excess Demand = million bags

a. Move the excess demand bag line where the two points 3 and 7 on the x axis line up. b. 4 million bags (7 - 3 = 4)

The price of a gallon of gasoline greatly increases over a prolonged period. How would this impact the equilibrium price and quantity in the market for for traditional internal combustion cars? The equilibrium price will increase. stay the same. decrease. The equilibrium quantity will increase. stay the same. decrease.

Equilibrium price = Decrease Equilibrium quantity = Decrease

A blight begins to infect yellow pine trees, the cheapest and most common softwood used in making construction-grade lumber. Adjust with the graph to help you predict what will happen to the equilibrium price and quantity in the market for lumber. The equilibrium price will increase. decrease. stay the same. The equilibrium quantity will increase. decrease. stay the same.

Equilibrium price = Increase Equilibrium quantity = decrease

At the current market price in the market for smartphones, the quantity of buyers is larger than the quantity of sellers. Given this situation, we can expect the market price of smartphones to: a) Increase b) Decrease c) remain unchanged

Increase

In an attempt to increase the consumption of healthy foods, the government offers subsidies to the producers of kale. Show the effect of this subsidy by shifting one or both of the curves in the market for kale shown in the graph.

Supply = decrease demand = the same

As income increases, the demand curve for an inferior good shifts to the left. True False

True

An economic institution that facilitates interaction between buyers and sellers is called ________. A market exists when ________ A market will _________

a. A market. b. people exchange money for goods and services c. always tends toward equilibrium

Use the accompanying graphs below to answer the questions about the market for Apple's current generation iPhone. a. Move the supply and/or demand curve to illustrate how an across-the-board cut in the price of all apps on the Apple App Store affects the market for iPhones. b. Move the supply and/or demand curve to illustrate how a decrease in the price of Samsung's current Galaxy smartphone impacts the market for iPhones.

a. Complementary good. - Move the demand to the right (only demand) b. Substitute good. - Move the demand to the left (only demand).

Assuming everything else stays the same, an increase in the price of laptop computers will __________ of laptop computers. a) decrease the quantity demanded b) increase the demand c) increase the quantity demanded d) decrease the demand

decrease the quantity demanded.

. An increase in government subsidies for an industry, which reduces production cost, causes the market equilibrium price to _____ and the market equilibrium quantity to _____. decrease; increase increase; decrease increase; increase decrease; decrease

decrease; increase

1. The supply and demand model assists in analyzing the: relationship between education and employment. growth in the overall level of economic activity. determinants of market price and quantity. connection between trade and U.S. employment levels.

determinants of market price and quantity.

If the price of a resource required to produce a good increases, the supply curve will shift to the right, indicating that producers are inclined to produce more of the good at each price point. True False

false

When the market for a good is in equilibrium, there is (are): no shortages or surpluses. an increase in the quantity demanded of the good. forces that induce a decrease in price. excess demand

no shortages or surpluses.

A change in the quantity demanded of a good results from a change in the: income of consumers. price of a good. tastes and preferences of consumers. price of complementary goods.

price of a good.

5. Improvements in technology that reduce production costs cause the _____ curve to shift to the _____, indicating a(n) _____ in the amount _____ at each price point. demand; right; increase; demanded supply; left; decrease; supplied demand; left; decrease; demanded supply; right; increase; supplied

supply; right; increase; supplied

Answer the two questions relating to supply and the law of supply. Which would cause a shift in the supply curve? The price of an input changed. The demand curve shifted. The price of a good changed. Buyers' incomes changed. What would happen if the price of kayaks increased? The supply of kayaks would decrease. The supply of kayaks would increase. The quantity of kayaks supplied would increase. The quantity of kayaks supplied would decrease.

a. The price of an input changed. b. The quantity of kayaks supplied would increase.

The figure shows the supply and demand for online music. Suppose that an economic downturn decreases household wealth and erodes consumer confidence. Move the supply and/or demand curves to reflect the primary effect this would have on the market for online music. You can assume that online music is a normal good. Also select the end result of equilibrium price and quantity. Equilibrium price increases. decreases. remains constant. change is ambigous. Equilibrium quantity increases. decreases. remains constant. change is ambiguous.

a. decrease. b. decrease.

Classify each scenario based on whether it will lead to upward or downward pressure on the equilibrium price of the good marked in bold. a. An outbreak of mad cow disease causes Americans to abstain from eating beef. b. An impending nuclear holocaust causes people to stock up on twonkies, a popular snack cake provided by many companies. c. The Nile River floods this year adding an exceptional amount of silt to the soil, resulting in increased crops of cotton. d. Extreme weather in New York, where the Super Bowl is scheduled to be played, makes people disinterested in purchasing Super Bowl tickets.

a. downward pressure on price. b. upward pressure on price. c. downward pressure on price. d. downward pressure on price.

Suppose that there has been a sudden influx of refugees in the small town of Dallon, leading to a doubling of the local population. The accompanying graph depicts Dallon's market for food. Adjust the graph to show the immediate impact that this rise in population has on the food market. Then determine what happens to equilibrium price and quantity. Equilibrium price decreases. may increase or decrease, but it is impossible to now for sure. remains constant. increases. Equilibrium quantity decreases. increases. remains constant. may increase or decrease, but it is impossible to now for sure.

a. increase b. increase

After the release of the iPhone, consumers began to prefer smartphones over traditional cell phones. Google also released its Android operating system as an open source (meaning free of licensing fees) platform for smartphone manufacturers to use in their devices. Determine what happens to equilibrium price and quantity in the market for smartphones. The equilibrium price will increase. will decrease. will stay the same. may increase, decrease or stay the same. The equilibrium quantity will increase. will stay the same. will decrease. may increase, decrease or stay the same.

a. may increase, decrease, or remain the same. b. increase.

Categorize each scenario as describing a movement along a demand curve or a shift of the demand curve. a. College students reduce how much detergent they use for each load of laundry in response to higher detergent prices. b. College students rush and buy discount furniture to take advantage of an unexpected price drop. c. College students purchase many more energy drinks during finals week than during the rest of the semester. d. Students eat out more often as the federal government increases how much grant money it provides students.

a. movement along the demand curve. b. movement along the demand curve. c. shift in the demand curve. d. shift in the demand curve.

Classify each scenario according to whether it represents a change in quantity supplied or a change in supply. a. If the price of apples decreases to $5 per bushel, Farmer Jack will supply 5 bushels of apples instead of 10 bushels of apples. b. As the price of apples increases, Farmer Jack increases the number of apples he offers for sale. c. Johnny, the jeweler, increases his inventory because he expects the price of jewelry to increase at the end of the year. d. Since Johnny is a successful jeweler, Jimmy also becomes a jeweler.

a. quantity supplied b. quantity supplied c. supply d. supply

The graph contains individual supply curves for the only two firms in a hypothetical market for stuffed animals. Place the market supply curve at the correct location on the graph. Then, consider what would happen to the market if a third supplier enters the market, holding all else constant. A third firm would mean market supply increases. market supply decreases. higher prices of stuffed animals. Firm 1 and Firm 2 would lower output to accommodate the new supplier in order to keep market supply constant.

a. see graph. b. market supply increases.

Consider the maximum amount of a product that sellers are willing and able to provide for sale over a relevant range of prices, holding all other factors constant. Economists call this supply. sales volume. profit maximization. maximal output. When the market price of a good increases, the amount that sellers are willing to offer for sale increases. Economists call this the price-quantity principle. the law of large numbers. the maximal quantity curve. the law of supply.

a. supply. b. law of supply.

Assume the market for DVD movies is initially at equilibrium. A decrease in the price of streamed movies, a substitute for DVD movies, will __________ the equilibrium price and ___________ the equilibrium quantity of DVD movies. a) increase; increase b) increase; decrease c) decrease; increase d) decrease;decrease

decrease;decrease

A shortage in the market for economics textbooks will ___________ the price of textbooks. a) decrease b) initially not change but then decrease c) increase d) not change

increase

Currently, the market for pizza pies in your neighborhood is at equilibrium. If a large number of people move into the area, we would expect the market price of pizza to: a) decrease b) increase c) remain unchanged

increase

If farmers begin using better fertilizers to grow corn, we would expect a(n) __________ in the supply of corn. a) small decrease b) no change c) large decrease d) increase

increase

Assuming everything else stays the same, an increase in the price of smartphones will __________ of smartphones. a) increase the supply b) increase the quantity supplied c) decrease the quantity supplied d) decrease the supply

increase the quantity supplied

4. Assume that hamburgers and ketchup are complements. If the price of hamburgers falls, demand for ketchup: decreases. increases. remains the same. moves to the left.

increases.

For each example listed, decide if the good is a normal good or an inferior good. Make sure you answer from the perspective of the individual or individuals doing the buying or consuming. a. Billy's mom increases his weekly allowance by $55. As a result, Billy increases the number of apps he downloads on his smartphone. Smartphone apps are good. b. Susan gets a 15 percent performance bonus at work. She can finally stop eating so many frozen pizzas and eat something more tasty. Frozen pizzas are good. c. Mike is an appliance salesman. Refrigerator sales in his store have fallen and so has his commission. Mike decides to switch from name brand cereal to generic cereal. Generic cereal is good. d. Hair stylist Molly loses a few of her clients. Molly cuts back on the number of smoothies she buys during the week. Smoothies are good.

a. normal good. b. inferior good. c. inferior good. d. normal good.

Determine which of the statements are examples of market transactions and which are not. Identify statements describing market transactions as "market"; otherwise label the statement "not market." Frank takes care of his elderly aunt while she recovers from knee replacement surgery. Jack and Diane buy tickets to the sold out Pirates game from a ticket scalper. Jess gets a soda from the vending machine on her afternoon break. The citizens of Marble Cliff, Vermont, get financial relief from the government after a flooddestroyed all of their homes. Suzanne gets a used textbook on eBay for much less than its list price at heruniversity's bookstore. Norm paints the fence in his front yard on his day off work. Mitchell buys 50 shares of General Motors stock at the going price per share.

a. not market b. market c. market d. not market. e. market. f. not market. g. market

Answer the two questions relating to demand and the law of demand. a. Which can cause a shift in the demand curve? A change in the cost of production the technology used by firms the price of a good one of the determinants of demand Which of the choices illustrates the law of demand? Pat : offers more candy bars for sale at $2 than at $1. None of the choices. wants to buy more candy bars at $1 than at $2. wants to buy more candy bars at $2 than at $1.

a. one of the determinants of demand b. wants to buy more candy bars at $1 than at $2.

Demand is best described as the additional satisfaction derived from a quantity of goods and services obtained when income increases. the quantity of a good or a service that people are willing and able to purchase at different possible prices. the quantity of a good or service that consumers will substitute when the price of a good changes. the total satisfaction that consuming a good provides people at different prices. the quantity of a good or a service that people will offer for sale at different possible prices. The law of demand says that as the price of a good increases, buyers are willing and able to purchase less. higher prices cause less demand. higher prices cause buyers to demand more. as the price of a good decreases, buyers are willing and able to purchase less. buyers demand lower prices.

a. the quantity of a good or a service that people are willing and able to purchase at different possible prices. b. as the price of a good increases, buyers are willing and able to purchase less. c. inverse or negative.

Suppose that the graph illustrates the market demand for poutine per month with an equilibrium price of $3.00 and equilibrium quantity of 4,000 servings of poutine. Please indicate on the graph the effects of a coupon that lowers the price by $2 and place point A at the new equilibrium. What is the new quantity of poutine demanded? Enter your answer in thousands, specified to one decimal place. poutine demanded: thousand

poutine demanded: 5.3 thousand Explanation Equilibrium price = $3.00 Price lowered = $2.00 New equilibrium price = $3.00 - $2.00 = $1.00 Look at the graph at $1 (which the dot touches the given line).

Assume a farmer's land is equally productive in growing corn or potatoes and is currently producing both. If the price of corn increases but the price of potatoes does not change, the farm's supply curve for potatoes will: shift to the right, and more potatoes will be produced at each price level. not change, because the production of potatoes is not affected by price changes for corn. shift to the left, and fewer potatoes will be produced at each price level. shift to the right, and fewer potatoes will be produced at each price level.

shift to the left, and fewer potatoes will be produced at each price level.