NAME:

HOMEWORK PROBLEMS FOR CHAPTER 3DEMAND AND SUPPLY

The following diagram represents the demand side of the market for coffee. Use the diagram to answer the nex
questions.

a = 20
b = -2
1
8
6
13

30
-2
18
4
18
4

4
6.5
7

12
7
16

a
b
c
d

A change in quantity demanded of coffee can be shown as a move from:

A to C.
A to B.
B to A.
Both b and c are correct.

a
b
c
d

A change in demand for coffee can be shown as a move from:

A to C.
C to A.
B to A.
Both a and b are correct.

a
b
c
d

The impact of a decrease in the price of coffee can be shown as a move from:
A to C.
A to B.
B to A.
C to A.

a
b
c
d

The impact of an increase in the price of coffee can be shown as a move from:
A to C.
A to B.
B to A.
C to A.

a
b
c
d

The impact of a decrease in the price of donuts (a product related to coffee) can be shown as a move fro
A to C.
A to B.
B to A.
C to A.

The impact of an increase in the price of donuts can be shown as a move from:
A to C.

b
c
d

A to B.
B to A.
C to A.

a
b
c
d

The impact of an increase in the price of tea (a coffee substitute) can be shown as a move from:
A to C.
A to B.
B to A.
C to A.

a
b
c
d

The impact of a decrease in the price of tea can be shown as a move from:
A to C.
A to B.
B to A.
C to A.

a
b
c
d

The results of a major research on health impact of drinking coffee are announced. The health news hea
Drinking coffee is good for you. The likely impact of this headline on the demand side of the market fo
can be shown as a move from:
A to C.
A to B.
B to A.
C to A.

a
b
c
d

The results of a major research on health impact of drinking coffee are announced. The health news hea
Drinking coffee is bad for you. The likely impact of this headline on the demand side of the market for
can be shown as a move from:
A to C.
A to B.
B to A.
C to A.

a
b
c
d

Which of the following changes would cause a decrease in the demand for DVD rentals?
An increase in the supply of DVD players.
A decrease in the price of movie admissions.
A decrease in the price of DVD players.
Improved technology in the manufacture of DVD players.

a
b
c
d

Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less
through the use of new technology?
The supply of kayaks will increase.
The supply of kayaks will decrease.
The demand for kayaks will increase.
The demand for kayaks will decrease.

a
b
c
d

The equilibrium price of a good is the price

that consumers prefer.
at which there is no surplus and no shortage of the good.
that producers prefer.
there is no opportunity cost associated with producing the good.

If the supply curve shifts to the left, and the demand curve does not change,
then the equilibrium price will decrease, and the quantity will increase.

10

11

12

13

14

b
c
d

then the equilibrium price will increase, and the quantity will decrease.
then the equilibrium price and quantity both will decrease.
then the equilibrium price and quantity both will increase.

a
b
c
d

Which of the following would cause a surplus of newsprint?

The supply of newsprint decreases, and the price is not permitted to change.
The demand for newsprint decreases, and the price adjusts to the new equilibrium.
The supply of newsprint decreases, and the price adjusts to the new equilibrium.
The demand for newsprint decreases, and the price is not permitted to change.

a
b
c
d

If housekeeping services are a normal good, then an increase in income will

increase the demand for housekeeping services.
decrease the demand for housekeeping services.
decrease the supply of housekeeping services.
increase the supply of housekeeping services.

a
b
c
d

How would an increase in the price of cotton affect the market for cotton T-shirts?
The demand for T-shirts will decrease.
The demand for T-shirts will increase.
The supply of T-shirts will decrease.
The supply of T-shirts will increase.

a
b
c
d

The upward slope of the supply curve indicates that

consumers seek to buy goods that are relatively less expensive.
producers supply more of a good when its price increases.
consumers do not take price into consideration when deciding whether to purchase a good.
firms do not take price into consideration when deciding how much of a good to produce.

15

16

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18

19

Which of the following variables consumers do NOT take into account when deciding whether to purchas
backyard swimming pool. That is, which variable does not affect the demand for backyard swimming poo
The cost of manufacturing the pool.
The cost of maintaining the pool.
The enjoyment they would expect from other goods they might purchase in place of the pool, such as a f
entertainment center.
The enjoyment they expect to derive from using the pool.

a
b
c
d

Which of the following could account for the fact that ice cream prices have recently increased and that
consumption of ice cream has declined?
The demand for ice cream has decreased.
The supply of ice cream has increased.
The demand for ice cream has increased.
The supply of ice cream has decreased.

a
b
c
d

Which of the following could account for the fact that ice cream prices have recently increased and that
consumption of ice cream has also increased?
The demand for ice cream has decreased.
The supply of ice cream has decreased.
The demand for ice cream has increased.
This could not happen. It is contrary to economic principals.

What happens in the market for wheat when dry winter weather causes a poor harvest?
The demand for wheat decreases, and the supply increases.

a
b
c

20

21

22

b
c
d

The demand for wheat increases, and the supply remains unchanged.
The supply of wheat decreases, and the demand remains unchanged.
The demand for wheat increases, and the supply decreases.

a
b
c
d

The downward slope of the demand curve indicates that, all else equal,
consumers will buy more of a good when its price decreases.
a decrease in the equilibrium price of a good will cause a shortage.
producers will supply more of a good when its price decreases.
producers will supply more of a good when its price increases.

a
b
c
d

A surplus arises when

demand for a good increases, causing an increase in the equilibrium price.
the price of a good is held above the equilibrium price.
demand for a good decreases, causing a decrease in the equilibrium price.
the price of a good is held below the equilibrium price.

a
b
c
d

What would be the dominant effect in the market for new homes of an increase in the wages of skilled tr
who work in housing construction?
The supply of new homes would shift to the right.
The demand for new homes would shift to the left.
The supply of new homes would shift to the left.
The demand for new homes would shift to the right.

a
b
c
d

If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in H
The supply of hotel rooms will decrease.
The supply of hotel rooms will increase.
The demand for hotel rooms will increase.
The demand for hotel rooms will decrease.

a
b
c
d

How is the market for dry cleaning services affected if there is a decrease in the supply of such services?
The equilibrium price increases and the equilibrium quantity increases also.
The equilibrium price increases and the equilibrium quantity decreases.
The equilibrium price decreases and the equilibrium quantity increases.
The equilibrium price decreases and the equilibrium quantity decreases also.

a
b
c
d

If the demand curve shifts to the left, and the supply curve does not change,
then the equilibrium price will increase, and the quantity will decrease.
then the equilibrium price will decrease, and the quantity will increase.
then the equilibrium price and quantity both will decrease.
then the equilibrium price and quantity both will increase.

a
b
c
d

Suppose that over time, you have observed an increase in the number of people owning digital cameras
decrease in the price of these cameras. Which of the following would account for this?
The demand has decreased and supply has remained constant.
The demand has increased and supply has remained constant.
The supply has increased and demand has remained constant.
The supply has decreased and demand has remained constant.

a
b

Federal Express and UPS are two firms that compete in providing overnight delivery services. How is the
for UPS affected by an increase in the rates charged by Federal Express?
The demand for UPS services will decrease.
UPS will decrease the supply of its services.

23

24

25

26

27

28

29

30

c
d

The demand for UPS services will increase.

UPS will increase the supply of its services.

The demand and supply schedules in the following table reflects the weekly demand and supply of
tickets in a small town. Answer the next FOUR questions based on this schedule.

$Price
4
5
6
7
8
9
31

Quantity
demanded
1,200
1,000
800
600
400
200

Quantity
Supplied
0
200
400
600
800
1,000

a
b
c
d

As the price of movie ticket falls from $8 to $7,

the quantity demanded of movie tickets increases from 400 to 600
the quantity supplied of movie tickets rises from 600 to 800.
the demand for movie tickets increases from 400 to 600.
the supply of movie tickets decreases from 800 to 600.

a
b
c
d

The market for movie tickets will be in equilibrium when the

equilibrium price is $6.00 and the equilibrium quantity is 400.
equilibrium price is $6.00 and the equilibrium quantity is 800.
equilibrium price is $7.00 and the equilibrium quantity is 600.
equilibrium price is $5.00 and the equilibrium quantity is 1,000.

a
b
c
d

If there is an increase in the demand for movie tickets, then at a price of $7.00
quantity demanded will equal 600.
quantity demanded will be less than 600.
quantity demanded will be more than 600.
It is impossible to tell the level of quantity demanded.

a
b
c
d

At a price of $9, there is a

surplus of 1,000 movie tickets.
shortage of 800 movie tickets.
surplus of 800 movie tickets.
surplus of 200 movie tickets.

32

33

34

Use the following information for the next FOUR problems

A survey indicated that chocolate ice cream is Americas favorite ice-cream flavor. For each of the following, ind
possible effects on demand and/or supply and equilibrium price and quantity of chocolate ice cream. Select the
you think is the best possible answer.
35
A severe drought in the Midwest causes dairy farmers to reduce the number of milk-producing cattle in th
herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice cream.
a
Demand for chocolate ice cream will decrease. Equilibrium price and quantity both will decrease.
b
Supply of chocolate ice cream will decrease. Equilibrium price and quantity both will decrease.
c
Supply of chocolate ice cream decreases. Equilibrium price will increase. Equilibrium quantity will decre
d
Quantity supplied of ice cream will increase along the supply curve as price rises.
36

A new report by the American Medical Association reveals that chocolate does, in fact, have significant h
benefits.

a
b
c
d
37

A new report by the American Medical Association reveals that chocolate does, in fact, have significant h
benefits.
Demand for chocolate ice cream will increase. Equilibrium price and quantity both will increase.
Quantity supplied of chocolate ice cream will increase as the price increases.
Quantity demanded of chocolate ice cream will increase as the price falls.
Both (a) and (b) are correct.

The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream.
This can be shown as a shift in the demand curve to the left. Fewer people will buy chocolate ice cream
lower price.
This can be shown as a shift in the supply curve to the right. More people will buy chocolate ice cream a
price falls.
This can be shown as a movement along the demand curve. More people will buy chocolate ice cream a
price falls.
Both (b) and (c) are correct.

a
b
c
d

New technology for mixing and freezing ice cream lowers manufacturers costs of producing chocolate ic
This can be shown as an increase in supply and an increase in quantity demanded.
This can be shown as an increase in supply and an increase in demand.
This can be shown as an increase in demand and an increase in quantity supplied.
Both (a) and (b) are correct.

a
b
c

38

The table below gives the annual U.S. demand and supply schedule for pickup trucks. Use the table for the next
problems
Quantity
Quantity
Price of
demanded
supplied
truck ($) (millions)
(millions)
20,000
20
14
25,000
18
15
30,000
16
16
35,000
14
17
40,000
12
18
Plot the demand and supply curves using these schedules.

39
a

Suppose the tires used on pickup trucks are found to be defective. What would you expect to happen to
for pickup trucks?
Supply of trucks will decrease. Equilibrium price will increase and equilibrium quantity will decrease.

b
c
d

Demand for trucks will decrease. Equilibrium price will decrease and equilibrium quantity will decrease.
Price of trucks will increase and quantity demanded will decrease.
Quantity supplied of trucks will decrease and equilibrium price will increase.

a
b
c
d

Suppose the price of trucks is fixed at $25,000. As a result,

There will be a shortage of 3 million trucks.
There will be a surplus of 3 million trucks.
There will be a surplus of 4 million trucks.
There will be a shortage of 4 million trucks.

40

Use the following information for the next SIX problems

In the market for blue jeans, let the following represent the supply and demand equations:
Demand equation:
Supply equation:
41
a
b
c
d

At the price of $50 a pair, there will be

An excess supply 12.5 (million) pairs of jeans.
A surplus of 7.5 (million) pairs of jeans.
An excess demand of 12.5 (million) pairs of jeans.
A shortage of 7.5 (million) pairs of jeans.

a
b
c
d

In the previous question the price that clears the market for blue jeans (the equilibrium price) is:
$25
$30
$35
$40

a
b
c
d

In the previous question, at the equilibrium

10 million pairs of jeans are sold.
12 million pairs of jeans are sold.
15 million pairs of jeans are sold.
18 million pairs of jeans are sold.

a
b
c
d

Suppose adverse weather conditions significantly impacts the output of cotton, the primary input in mak
jeans. As a result,
The quantity supplied of blue jeans will decrease.
The supply of blue jeans will shift down.
The supply of blue jeans will decrease.
The demand for blue jeans will decrease.

42

43

44

Suppose after the reduction in the cotton harvest, the new supply of blue jeans is represented by the foll
equation: QS = 12.5 + 0.5P

45

a
b
c
d
46

QD = 25 0.25P
QS = 5 + 0.5P.

If the condition affecting the demand for blue jeans remain unchanged (the same equation as in question
new equilibrium price and quantity in the blue jean market are:
PE = $50
QE = 12.5
PE = $55
QE = 11.0
PE = $60
QE = 10.5
PE = $65
QE = 9.0
If government fixed the price of blue jeans at the old equilibrium level (the answer for question 31), this
would be a

a
b
c
d
47

a
b
c
d

48
a
b
c
d

49
a
b
c
d

50

If government fixed the price of blue jeans at the old equilibrium level (the answer for question 31), this
would be a
binding price floor and would create a surplus of 7.5 million pairs.
binding price ceiling and would create a shortage of 7.5 million pairs.
binding price ceiling and would create a shortage of 5 million pairs.
non binding price ceiling and would not affect the equilibrium price and quantity of blue jeans.

Equilibrium in the fish market is disturbed by two different events: (i) a report by the American Medical
Association announces that increased consumption of fish is associated with lower heart disease, and (ii)
fishermen are banned from fishing in environmentally sensitive areas that previously were important sou
their catch. In the market for fish,
equilibrium price will increase and equilibrium quantity will decrease.
both equilibrium price and quantity will increase.
equilibrium price will increase but there will be no change in equilibrium quantity.
equilibrium price will increase but we dont have enough information to determine the change in equilibr
quantity.

How will the market for bicycles be affected by an increase in the price of gasoline and an increase in the
for exercise?
The equilibrium price and quantity of bicycles will increase.
The equilibrium price of bicycles will fall and the equilibrium quantity will increase.
The equilibrium price of bicycles will rise but we dont have enough information to determine the change
equilibrium quantity.
The equilibrium quantity of bicycles will rise but we dont have enough information to determine the cha
equilibrium price.

A new fertilizer doubles the grape harvest in the California wine country, while at the same time the gove
decreases the minimum age to purchase wine to 18. In the market for wine,
both the equilibrium price and quantity of wine will increase.
the equilibrium price will remain the same while the equilibrium quantity will increase.
the equilibrium quantity will increase but we dont have enough information to determine the change in
equilibrium price.
the equilibrium price of wine will rise but we dont have enough information to determine the change in
equilibrium quantity.

a
b
c
d

As the price of personal computers continues to fall, demand increases. Strictly speaking, this headlin
inaccurate because
a change in the price of personal computers shifts the demand curve.
a change in the price of personal computers shifts the supply curve.
the statement is backwards: increased demand leads to lower prices.
falling prices for personal computers increases quantity demanded, not demand.

a
b
c
d

One observes that the equilibrium price of coffee decreases, and the equilibrium quantity decreases. Wh
the following best fits the observed data?
A decrease in demand with supply constant.
A decrease in demand and a decrease in supply, with supply shifting more than demand.
A decrease in demand and a decrease in supply, with demand shifting more than supply.
Both (a) and (c) are correct.

51

Refer to the following diagrams for the next NINE questions

Select the panel which best depicts the market situation described in the question and the relevant changes in t
supply or demand.

52
a
b
c
d
e

Generic or store brand grocery products. (These products are generally considered inferior goods.) Beca
the booming economy (economic expansion) the average household income rises.
Panel (1)
Panel (2)
Panel (3)
Panel (4)
Panel (5)

a
b
c
d
e

Market for Coca Cola. Price of Pepsi Cola is reduced.

Panel (1)
Panel (2)
Panel (3)
Panel (4)
Panel (5)

a
b
c
d
e

Market for automobiles with hybrid engines. There is a lasting increase in price of gasoline.
Panel (1)
Panel (2)
Panel (3)
Panel (5)
Panel (6)

a
b
c
d
e

The market for American-made automobiles. The President imposes restrictions on foreign steel imports
Panel (1)
Panel (2)
Panel (3)
Panel (4)
Panel (6)

a
b
c
d
e

The market for imported automobiles. The price of steel in Japan decreases.
Panel (1)
Panel (2)
Panel (3)
Panel (4)
Panel (5)

53

54

55

56

a
b
c
d
e

Market for DVD's. New technology is developed to manufacture DVD players.

Panel (1)
Panel (2)
Panel (4)
Panel (5)
Panel (6)

a
b
c
d
e

Market for VCR's. (Do you know what a VCR is?). New technology is developed to manufacture DVD play
Panel (1)
Panel (2)
Panel (3)
Panel (4)
Panel (6)

a
b
c
d
e

Market for butter. French cooking becomes popular. (Note: French cooking uses a lot of butter.) There
cow disease epidemic.
Panel (2)
Panel (3)
Panel (4)
Panel (5)
Panel (6)

a
b
c
d
e

Market for beef. Published research shows that white meat (poultry) is healthier than red meat. Import o
Canadian beef is restricted because of the discovery of cases of mad cow disease.
Panel (2)
Panel (3)
Panel (4)
Panel (5)
Panel (6)

a
b
c
d
e

Recent published research shows that drinking tea has significant health benefits. This discovery is wide
reported in the media. Also Brazil and Columbia coffee growers associations announce that the coffee ha
below last years because of adverse weather conditions. Which of the following correctly explains the im
the equilibrium price and quantity of coffee.
Equilibrium price and quantity of coffee will both decrease.
Equilibrium price and quantity of coffee will both increase.
Equilibrium price will increase, but the impact on equilibrium quantity is indeterminate.
Equilibrium quantity will decrease, but the impact on the equilibrium price is indeterminate.
Equilibrium price will decrease, but the impact on the equilibrium quantity is indeterminate.

57

58

59

60

61

diagram to answer the next TEN

n be shown as a move from:

Enter your LETTER answers HERE

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Note:
When done, using your last name and firstname
e201Lastname Firstname HW2
and e-mail it to

n as a move from:

ced. The health news headline is:

mand side of the market for coffee

ced. The health news headline is:

and side of the market for coffee

ring kayaks becomes less costly

52
53
54
55
56
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hase a good.
o produce.

ciding whether to purchase a

or backyard swimming pools?

ace of the pool, such as a family

cently increased and that

cently increased and that

e in the wages of skilled tradesmen

market for hotel rooms in Hawaii?

e supply of such services?

le owning digital cameras and a

or this?

ivery services. How is the market

demand and supply of movie

dule.

r each of the following, indicate the

ate ice cream. Select the choice

milk-producing cattle in their

e chocolate ice cream.
both will decrease.
th will decrease.

librium quantity will decrease.

in fact, have significant health

both will increase.

ice cream.
buy chocolate ice cream at a

buy chocolate ice cream as the

buy chocolate ice cream as the

of producing chocolate ice cream.

Use the table for the next two

d you expect to happen to market

quantity will decrease.

m quantity will decrease.

uilibrium price) is:

, the primary input in making blue

s is represented by the following

me equation as in question 30), the

wer for question 31), this price

ty of blue jeans.

by the American Medical

wer heart disease, and (ii)
iously were important sources for

mine the change in equilibrium

line and an increase in the desire

n to determine the change in

tion to determine the change in

at the same time the government

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determine the change in

ctly speaking, this headline is

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n demand.

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ng correctly explains the impact on

determinate.
determinate.

ing your last name and firstname, save THIS FILE as,
e Firstname HW2
stowfig@iupui.edu