Chapter 3Market Supply and Demand     • Key Concepts     • Summary     • Practice Quiz     • Internet Exercises        ©20...
In this chapter, you will  learn to solve these   economic puzzles:   What is the difference Can Congress repeal the  Does...
What is the         Law of Demand?The principle that there is an inverse relationship between the price of a good and the ...
What does “Ceteris   Paribus” mean?All else remains the same                    4
What is a Demand Curve?  Depicts the relationship   between price and   quantity demanded                     5
Individual’s Demand Curve for Compact Discs P            A                              Individuals Buyer’s Demand Schedul...
Why do Demand Curveshave a Negative Slope?At a higher price consumers will buy fewer units, and at a lower price they will...
What is a   Demand Schedule?Shows the specific quantity of a good or service that people are willing and able to buy at di...
What is Market Demand?    The summation of     the individual     demand schedules                   9
IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY DEMANDED AND A CHANGE IN DEMAND             10
When price changes,  what happens?The curve does not shift - there is a change in the   quantity demanded                 ...
Increase in               Quantity              DemandedDecrease in  Price                    12
P          Fred’s Demand Curve$20$15$10$5                D1      1 2 3 4 5 6 7 8 9 Q                    13
P          Mary’s Demand Curve$20$15$10$5                       D2      1 2 3 4 5 6 7 8 9 Q                    14
P          Market Demand Curve$20$15$10                         D3$5                              Q      3 4 5 6 7 8 9 10 ...
P                                    P          Fred’s Demand Curve                     Mary’s Demand Curve$20            ...
Market Demand Schedule for Compact Discs Price      Fred    Mary   Total Demanded $25         1 + 0 = 1 $20         2   1 ...
P     A change in price causes a change           in the quantity demanded$20$15           A                      B$10    ...
When something  changes other than price, what happens? The whole curve shifts -there is a change in demand               ...
P      When the ceteris paribus assumption is       relaxed, the whole curve can shift$20             A             B$15$1...
Increase in                demand Change in nonpricedeterminant                    21
What can cause a shift  in a Demand Curve?1. Number of buyers in the market2. Tastes and preferences3. Income4. Expectatio...
Decrease in                        quantity                       demanded               Upward             movement      ...
Increase in                        quantity                       demanded             Downward             movement      ...
Decrease or                           increase in                             demand                 Leftward or          ...
What is a Normal Good?Any good for which there is a direct relationship between changes in income and its demand curve    ...
What is an     Inferior Good?Any good for which there is an inverse relationship between changes in income and its demand ...
What areSubstitute Goods?Goods that compete with one another for consumer purchases                  28
What happens when theprice increases for a good  that has a substitute? The demand curve for the  substitute good increase...
What happens when theprice decreases for a good  that has a substitute? The demand curve for the  substitute good decrease...
What does a Direct  Relationship betweenprice and quantity mean?It means that the two move  in the same direction         ...
What areComplementary Goods?  Goods that are jointly   consumed with   another good                    32
What happens when theprice increases for a good that has a complement? The demand curve for the  substitute good decreases...
What happens when theprice decreases for a good that has a complement? The demand curve for the  substitute good increases...
What does an Inverse  Relationship betweenprice and quantity mean?It means that the two move  in opposite directions      ...
What is the     Law of Supply?The principle that there is a direct relationship between the price of a good and the quanti...
Why do Supply Curveshave a Positive Slope?Only at a higher price will it be profitable for sellers to incur the higher opp...
P        A company’s      Supply Curve for                         Supply Curve$20       Compact Discs          A$15      ...
An Individual Seller’s Supply for Compact Discs      Point           Price        Quantity      A              $20        ...
P    Super Sound Supply Curve$25                              S1$20$15$10      10    15     20      25                    ...
P    High Vibes Supply Curve$25                             S2$20$15$10      20   25      30     35                       ...
What is a Market?Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and ser...
What is Market Supply?The horizontal summation of all the quantities supplied at various prices that might prevail in the ...
P     Market Supply Curve$25$20                S total$15$10      40   45     55      60                          44      ...
Market Supply Schedule for Compact Discs Price   Super Sound High Vibes   Total Supplied $25         25 + 35 =            ...
IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY SUPPLIED AND A CHANGE IN SUPPLY             46
When price changes, what happens?The curve does not shift - there is a change in the    quantity supplied                 ...
P      A change in price      causes a change in                           Supply Curve$20         the quantity           ...
Increase in               Quantity               SuppliedIncrease in   Price                    49
When something changes other thanprice, what happens? The whole curve shifts -there is a change in supply                 ...
P      When the ceteris      paribus assumption is$20       relaxed, the whole         curve can shift       S1         S2...
Increase in                supply Change in nonpricedeterminant                    52
What can cause a shift   in a Supply Curve?1. Number of sellers in the market2. Technology3. Resource prices4. Taxes and s...
P               The Supply & Demand                   for Tennis Shoes$120$90                           S               Su...
What is an Equilibrium?A market condition that occurs at any price for which the quantity demanded and the quantity suppli...
What is the Price System? A mechanism that uses the  forces of supply and  demand to create an  equilibrium through rising...
Key Concepts           57
Key Concepts•   What is the Law of Demand?•   What is a Demand Curve?•   Why do Demand Curves have a Negative Slope?•   Wh...
Key Concepts cont.•   What is the Law of Supply?•   Why do Supply Curves have a Positive Slope?•   When price changes, wha...
Summary          60
The law of demand states thereis an inverse relationship between theprice and the quantity demanded,ceteris paribus. A mar...
Individual’s Demand Curve for Compact Discs P            A                              Individuals Buyer’s Demand Schedul...
A change in quantity demanded isa movement along a stationary demandcurve caused by a change in price.When any of the nonp...
P      When the ceteris paribus assumption is       relaxed, the whole curve can shift$20             A             B$15$1...
Nonprice determinants ofdemand area. the number of buyers,b. tastes and preferences.c. income (normal and inferior).d. exp...
The law of supply states there is adirest relationship between the priceand the quantity supplied, ceterisparibus. The mar...
A change in quantity supplied is amovement along a stationary supplycurve caused by a change in price.When any of the nonp...
P        A company’s      Supply Curve for                         Supply Curve$20       Compact Discs          A$15      ...
P      When the ceteris      paribus assumption is$20       relaxed, the whole         curve can shift       S1         S2...
Nonprice determinants of supplya. the number of sellers.b. technologyc. resource prices.d. taxes and subsidies.e. expectat...
A surplus or shortage exists atany price where the quantitydemanded and the quantity suppliedare not equal. When the price...
Equilibrium is the unique priceand quantity established at theintersection of the supply and thedemand curves. Only at equ...
P               The Supply & Demand                   for Tennis Shoes$120$90                           S               Su...
The price system is the supply anddemand mechanism that establishesequilibrium through the ability of pricesto rise or fal...
Chapter 3 Quiz  ©2000 South-Western College Publishing                                           75
1. If the demand curve for good X is  downward-sloping, this means that an  increase in the price will result in   a. an i...
2. The law of demand states that the quantity  demanded of a good changes, other things  being equal, when   a. the price ...
3. Which of the following is the result of a  decrease in the price tea, other things  being equal?   a. A leftward shift ...
4. Which of the following will cause a  movement along the demand curve for X?   a. A change in the price of a close     s...
5. Assuming that beef and pork are  substitutes, a decrease in the price of pork  will cause the demand curve for beef to ...
6. Assuming that coffee and tea are substitutes,  a decrease in the price of coffee, other things  being equal, results in...
7. Assuming steak and potatoes are  complements, a decrease in the price of  steak will   a. decrease the demand for steak...
8. Assuming that steak is a normal good,  a decrease in consumer income, other  things being equal, will   a. cause a down...
9. An increase in consumer income, other  things being equal, will   a. shift the supply curve for a normal good     to th...
10. Yesterday, seller A supplied 400 units of a  good X at $10 per unit. Today, seller A  supplies the same quantity of un...
P      When the ceteris      paribus assumption is$20       relaxed, the whole         curve can shift       S1         S2...
11. An improvement technology causes a (an)  a. leftward shift of the supply curve.  b. upward movement along the supply  ...
12. Suppose auto workers receive a substantial  wage increase. Other things being equal, the  price of autos will rise bec...
13. Assuming that soybeans and tobacco can  both be grown on the same land, an increase  in the price of tobacco, other th...
14. If Qd = quantity demanded and Qs =  quantity supplied at a given price, a  shortage in the market results when   a. Qs...
15. Assume that the equilibrium price for a good  is $10. If the market price is $5, a   a. shortage will cause the price ...
P       Supply & Demand Exhibit$2.00$1.50                      S$1.00$.50                       D        100   200   300  ...
16. In the market shown in the previous  graph, the equilibrium price and quantity of  good X are   a. $0.50, 200.   b. $1...
17. In the previous graph, at a price of $2.00,  the market for good X will experience a   a. shortage of 150 units.   b. ...
18. In the previous graph, if the price of good  X moves from $1.00 to $2.00, the new  market condition will put          ...
Internet ExercisesClick on the picture of the book, choose updates by chapter for the latest internet exercises           ...
END      97
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03 market supply and demand

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03 market supply and demand

  1. 1. Chapter 3Market Supply and Demand • Key Concepts • Summary • Practice Quiz • Internet Exercises ©2000 South-Western College Publishing 1
  2. 2. In this chapter, you will learn to solve these economic puzzles: What is the difference Can Congress repeal the Does the price system between a “change into law of supply in order eliminate scarcity? quantity demanded” and a control oil prices? “change in demand”? 2
  3. 3. What is the Law of Demand?The principle that there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus* Return to previous slide while in slide show 3
  4. 4. What does “Ceteris Paribus” mean?All else remains the same 4
  5. 5. What is a Demand Curve? Depicts the relationship between price and quantity demanded 5
  6. 6. Individual’s Demand Curve for Compact Discs P A Individuals Buyer’s Demand Schedule for Compact Discs$20 Point Price Quantity demanded per compact disk (per year) A $20 4$15 B B $15 6 C $10 8 C D $5 16$10 7 D$5 Demand Curve 4 8 16 20 6 Q
  7. 7. Why do Demand Curveshave a Negative Slope?At a higher price consumers will buy fewer units, and at a lower price they will buy more units 7
  8. 8. What is a Demand Schedule?Shows the specific quantity of a good or service that people are willing and able to buy at different prices 8
  9. 9. What is Market Demand? The summation of the individual demand schedules 9
  10. 10. IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY DEMANDED AND A CHANGE IN DEMAND 10
  11. 11. When price changes, what happens?The curve does not shift - there is a change in the quantity demanded 11
  12. 12. Increase in Quantity DemandedDecrease in Price 12
  13. 13. P Fred’s Demand Curve$20$15$10$5 D1 1 2 3 4 5 6 7 8 9 Q 13
  14. 14. P Mary’s Demand Curve$20$15$10$5 D2 1 2 3 4 5 6 7 8 9 Q 14
  15. 15. P Market Demand Curve$20$15$10 D3$5 Q 3 4 5 6 7 8 9 10 11 12 15
  16. 16. P P Fred’s Demand Curve Mary’s Demand Curve$20 $20$15 $15$10 $10$5 D1 $5 D2 1 2 3 4 5 6 7 8 9 Q 12 1 2 3 4 5 6 7 8 9 Q 13 P Market Demand Curve $20 $15 $10 D3 $5 Q 3 4 5 6 7 8 9 10 11 12 16 14
  17. 17. Market Demand Schedule for Compact Discs Price Fred Mary Total Demanded $25 1 + 0 = 1 $20 2 1 3 $15 3 3 6 $10 4 5 9 $5 5 7 12 17
  18. 18. P A change in price causes a change in the quantity demanded$20$15 A B$10 D$5 Q 10 20 30 40 18 50
  19. 19. When something changes other than price, what happens? The whole curve shifts -there is a change in demand 19
  20. 20. P When the ceteris paribus assumption is relaxed, the whole curve can shift$20 A B$15$10 D2$5 D1 Q 10 20 30 40 50 20
  21. 21. Increase in demand Change in nonpricedeterminant 21
  22. 22. What can cause a shift in a Demand Curve?1. Number of buyers in the market2. Tastes and preferences3. Income4. Expectations of consumers5. Prices of related goods 22
  23. 23. Decrease in quantity demanded Upward movement along the demand curve Priceincreases 23
  24. 24. Increase in quantity demanded Downward movement along the demand curve Pricedecreases 24
  25. 25. Decrease or increase in demand Leftward or rightward shift in the demand curve Nonpricedeterminant 25
  26. 26. What is a Normal Good?Any good for which there is a direct relationship between changes in income and its demand curve 26
  27. 27. What is an Inferior Good?Any good for which there is an inverse relationship between changes in income and its demand curve 27
  28. 28. What areSubstitute Goods?Goods that compete with one another for consumer purchases 28
  29. 29. What happens when theprice increases for a good that has a substitute? The demand curve for the substitute good increases 29
  30. 30. What happens when theprice decreases for a good that has a substitute? The demand curve for the substitute good decreases 30
  31. 31. What does a Direct Relationship betweenprice and quantity mean?It means that the two move in the same direction 31
  32. 32. What areComplementary Goods? Goods that are jointly consumed with another good 32
  33. 33. What happens when theprice increases for a good that has a complement? The demand curve for the substitute good decreases 33
  34. 34. What happens when theprice decreases for a good that has a complement? The demand curve for the substitute good increases 34
  35. 35. What does an Inverse Relationship betweenprice and quantity mean?It means that the two move in opposite directions 35
  36. 36. What is the Law of Supply?The principle that there is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus 36
  37. 37. Why do Supply Curveshave a Positive Slope?Only at a higher price will it be profitable for sellers to incur the higher opportunity cost associated with supplying a larger quantity 37
  38. 38. P A company’s Supply Curve for Supply Curve$20 Compact Discs A$15 B$10 C$5 10 20 30 40 38 Q
  39. 39. An Individual Seller’s Supply for Compact Discs Point Price Quantity A $20 40 B 10 30 C 6 20 39
  40. 40. P Super Sound Supply Curve$25 S1$20$15$10 10 15 20 25 40 Q
  41. 41. P High Vibes Supply Curve$25 S2$20$15$10 20 25 30 35 41 Q
  42. 42. What is a Market?Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged 42
  43. 43. What is Market Supply?The horizontal summation of all the quantities supplied at various prices that might prevail in the market 43
  44. 44. P Market Supply Curve$25$20 S total$15$10 40 45 55 60 44 Q
  45. 45. Market Supply Schedule for Compact Discs Price Super Sound High Vibes Total Supplied $25 25 + 35 = 60 $20 20 30 50 $15 15 25 40 $10 10 20 30 $5 5 15 20 45
  46. 46. IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY SUPPLIED AND A CHANGE IN SUPPLY 46
  47. 47. When price changes, what happens?The curve does not shift - there is a change in the quantity supplied 47
  48. 48. P A change in price causes a change in Supply Curve$20 the quantity supplied A$15 B$10 C$5 10 20 30 40 48 Q
  49. 49. Increase in Quantity SuppliedIncrease in Price 49
  50. 50. When something changes other thanprice, what happens? The whole curve shifts -there is a change in supply 50
  51. 51. P When the ceteris paribus assumption is$20 relaxed, the whole curve can shift S1 S2$15$10$5 10 20 30 40 51 Q
  52. 52. Increase in supply Change in nonpricedeterminant 52
  53. 53. What can cause a shift in a Supply Curve?1. Number of sellers in the market2. Technology3. Resource prices4. Taxes and subsidies5. Expectations of producers6. Prices of other goods the firm could produce 53
  54. 54. P The Supply & Demand for Tennis Shoes$120$90 S Surplus$60 Shortage$30 D 1,000 2,000 3,000 4,000 54 Q
  55. 55. What is an Equilibrium?A market condition that occurs at any price for which the quantity demanded and the quantity supplied are equal 55
  56. 56. What is the Price System? A mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices 56
  57. 57. Key Concepts 57
  58. 58. Key Concepts• What is the Law of Demand?• What is a Demand Curve?• Why do Demand Curves have a Negative Slope?• When price changes, what happens?• When something changes other than price, what• What can cause a shift in a Demand Curve? 58
  59. 59. Key Concepts cont.• What is the Law of Supply?• Why do Supply Curves have a Positive Slope?• When price changes, what happens?• When something changes other than price, wh• What can cause a shift in a Supply Curve?• What is a Market?• What is an Equilibrium? 59
  60. 60. Summary 60
  61. 61. The law of demand states thereis an inverse relationship between theprice and the quantity demanded,ceteris paribus. A market demandcurve is the horizontal summation ofindividual demand curves. 61
  62. 62. Individual’s Demand Curve for Compact Discs P A Individuals Buyer’s Demand Schedule for Compact Discs$20 Point Price Quantity demanded per compact disk (per year) A $20 4$15 B B $15 6 C $10 10 C D $5 16$10 7 D$5 Demand Curve 4 8 12 16 62 Q
  63. 63. A change in quantity demanded isa movement along a stationary demandcurve caused by a change in price.When any of the nonprice determinantsof demand changes, the demand curveresponds by shifting. An increase indemand (rightward shift) or a decreasein demand (leftward shift) is caused bya change in one of the nonpricedeterminants. 63
  64. 64. P When the ceteris paribus assumption is relaxed, the whole curve can shift$20 A B$15$10 D2$5 D1 Q 10 20 30 40 50 64
  65. 65. Nonprice determinants ofdemand area. the number of buyers,b. tastes and preferences.c. income (normal and inferior).d. expectations of future p;rice andincome changes, ande. prices of related goods(substitutes and complements). 65
  66. 66. The law of supply states there is adirest relationship between the priceand the quantity supplied, ceterisparibus. The market supply curve isthe horizontal summation ofindividual supply curves. 66
  67. 67. A change in quantity supplied is amovement along a stationary supplycurve caused by a change in price.When any of the nonprice determinantsof supply changes, the supply curveresponds by shifting. An increase insupply (rightward shift) or a decreasein supply (leftward shift) is caused by achange in one of the nonpricedeterminants. 67
  68. 68. P A company’s Supply Curve for Supply Curve$20 Compact Discs A$15 B$10 C$5 10 20 30 40 68 Q
  69. 69. P When the ceteris paribus assumption is$20 relaxed, the whole curve can shift S1 S2$15$10$5 10 20 30 40 69 Q
  70. 70. Nonprice determinants of supplya. the number of sellers.b. technologyc. resource prices.d. taxes and subsidies.e. expectations of future price changes,f. prices of other goods. 70
  71. 71. A surplus or shortage exists atany price where the quantitydemanded and the quantity suppliedare not equal. When the price of agood is greater than the equilibriumprice, there is an excess quantitysupplied called a surplus. When theprice is less than the equilibriumprice, there is an excess quantitydemanded called a shortage. 71
  72. 72. Equilibrium is the unique priceand quantity established at theintersection of the supply and thedemand curves. Only at equilibriumdoes quantity demanded equalquantity supplied. 72
  73. 73. P The Supply & Demand for Tennis Shoes$120$90 S Surplus$60 Shortage$30 D 1,000 2,000 3,000 4,000 73 Q
  74. 74. The price system is the supply anddemand mechanism that establishesequilibrium through the ability of pricesto rise or fall. 74
  75. 75. Chapter 3 Quiz ©2000 South-Western College Publishing 75
  76. 76. 1. If the demand curve for good X is downward-sloping, this means that an increase in the price will result in a. an increase in the demand for good X. b. a decrease in the demand for good X. c. no change in the quantity demanded for good X. d. a larger quantity demanded for good X. e. a smaller quantity demanded for good X. E. When price changes there is a opposite change in the quantity demanded as measured on the horizontal axis. 76
  77. 77. 2. The law of demand states that the quantity demanded of a good changes, other things being equal, when a. the price of the good changes. b. consumer income changes. c. the prices of other goods change. d. a change occurs in the quantities of other goods purchased.A. A “change in demand” means that the whole curve shifts, but a “change in the quantity demanded” means that there is movement along a stationary curve. 77
  78. 78. 3. Which of the following is the result of a decrease in the price tea, other things being equal? a. A leftward shift in the demand curve for tea. b. A downward movement along the demand curve for tea. c. A rightward shift in the demand curve for tea. d. An upward movement along the demand curve for tea. B. Because demand curves have a negative slope, as the price declines, the quantity demanded will increase. 78
  79. 79. 4. Which of the following will cause a movement along the demand curve for X? a. A change in the price of a close substitute. b. A change in the price of good X. c. A change in consumer tastes and preferences for good X. d. A change in consumer income.B. Movement along a given demand curve always occurs when the price changes, if anything other than price changes, then the whole curve will shift. 79
  80. 80. 5. Assuming that beef and pork are substitutes, a decrease in the price of pork will cause the demand curve for beef to a. shift to the left as consumers switch from beef to pork. b. shift to the right as consumers switch from beef to pork. c. remain unchanged, since beef and pork are sold in separate markets. d. none of the above.A. With a decrease in the price of pork people will want to buy more pork; because beef and pork are substitutes, they will buy less at possible prices for beef. 80
  81. 81. 6. Assuming that coffee and tea are substitutes, a decrease in the price of coffee, other things being equal, results in a (an) a. downward movement along the demand curve for tea. b. leftward shift in the demand curve for tea. c. upward movement along the demand curve for tea. d. rightward shift in the demand curve for tea. B. With a decrease in the price of coffee people will want to buy more coffee; because coffee and tea are substitutes, they will buy less at possible prices for tea. 81
  82. 82. 7. Assuming steak and potatoes are complements, a decrease in the price of steak will a. decrease the demand for steak. b. increase the demand for steak. c. increase the demand for potatoes. d. decrease the demand for potatoes. C. With a decrease in the price of steak people will want to buy more steak; because steak and potatoes are complements, they will buy more potatoes as well. 82
  83. 83. 8. Assuming that steak is a normal good, a decrease in consumer income, other things being equal, will a. cause a downward movement along the demand curve for steak. b. shift the demand curve for steak to the left. c. cause an upward movement along the demand curve for steak. d. shift the demand curve for steak to the right.B. Normal goods are goods that people will buy more of as their incomes increase and less of as their income decreases. 83
  84. 84. 9. An increase in consumer income, other things being equal, will a. shift the supply curve for a normal good to the right. b. cause an upward movement along the demand curve for an inferior good. c. shift the demand curve for an inferior good to the left. d. cause a downward movement along the supply curve for a normal good.C. Inferior goods are goods that people will buy less of at possible prices as their income increases. 84
  85. 85. 10. Yesterday, seller A supplied 400 units of a good X at $10 per unit. Today, seller A supplies the same quantity of units at $5 per unit. Based on this evidence, seller A has experienced a (an) a. decrease in supply. b. increase in supply. c. increase in the quantity supplied. d. decrease in the quantity supplied. e. increase in demand. B. A shift to the right of a supply curve along a stationary demand curve will result in a lower price as illustrated on the next page. 85
  86. 86. P When the ceteris paribus assumption is$20 relaxed, the whole curve can shift S1 S2$15$10$5 10 20 30 40 86 Q
  87. 87. 11. An improvement technology causes a (an) a. leftward shift of the supply curve. b. upward movement along the supply curve. c. firm to supply a larger quantity at any given price. d. downward movement along the supply curve. C. When price changes, the supply curve itself does not change, but when other things change, the whole curve will shift. A change in technology is an example of what can cause the supply curve to shift. 87
  88. 88. 12. Suppose auto workers receive a substantial wage increase. Other things being equal, the price of autos will rise because of a (an) a. increase in the demand for autos. b. rightward shift of the supply curve for autos. c. leftward shift of the supply curve for autos. C. A change in costsdemand for autos. d. reduction in the for a business is a factor that will shift the supply curve. If costs go up, as in the case of having to pay higher wages, the supplier has less of an ability to supply cars. 88
  89. 89. 13. Assuming that soybeans and tobacco can both be grown on the same land, an increase in the price of tobacco, other things being equal, causes a (an) a. upward movement along the supply curve for soybeans. b. downward movement along the supply curve for soybeans. c. rightward shift in the supply for soybeans. d. leftward shift in the supply for soybeans. D. With an increase in the price of tobacco farmers will want to grow more tobacco to take advantage of the higher price. Farmers will therefore plant soybeans on land they used to use for tobacco.89
  90. 90. 14. If Qd = quantity demanded and Qs = quantity supplied at a given price, a shortage in the market results when a. Qs is greater than Qd. b. Qs equals Qd. c. Qs is less than or equal to Qd. d. Qs is greater than or equal to Qd.D. When there are more units of something being demanded than being supplied, a shortage will result. 90
  91. 91. 15. Assume that the equilibrium price for a good is $10. If the market price is $5, a a. shortage will cause the price to remain at $5. b. surplus will cause the price to remain at $5. c. shortage will cause the price to rise toward $10. d. surplus will cause the price to rise toward $10. C. When the price of a good is below the market price, there are more units being supplied than being demanded. The result is a shortage and consumers will bid the price up toward the equilibrium price. 91
  92. 92. P Supply & Demand Exhibit$2.00$1.50 S$1.00$.50 D 100 200 300 400 Q 92
  93. 93. 16. In the market shown in the previous graph, the equilibrium price and quantity of good X are a. $0.50, 200. b. $1.50, 300. Previous graph c. $2.00, 100. d. $1.00, 200.D. The equilibrium price and equilibrium quantity are at the point where the quantity demanded equals the quantity supplied. This is the price toward which the economy tends. 93
  94. 94. 17. In the previous graph, at a price of $2.00, the market for good X will experience a a. shortage of 150 units. b. surplus of 100 units. Previous graph c. shortage of 100 units. d. surplus of 200 units.D. At a price of $2.00 the quantity demanded is 100 and the quantity supplied is 300; 300 units minus 100 equals 200 units. 94
  95. 95. 18. In the previous graph, if the price of good X moves from $1.00 to $2.00, the new market condition will put Previous graph a. upward pressure on price. b. no pressure on price to change. c. downward pressure on price. d. no pressure on quantity to change.C. Anytime the price is above the equilibrium price a surplus will result. Suppliers will therefore lower price to get rid of the surplus. 95
  96. 96. Internet ExercisesClick on the picture of the book, choose updates by chapter for the latest internet exercises 96
  97. 97. END 97

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