ABSE 101
Frederick University
Supply and Demand
Dr. Petia Tanova
Exercises
1. The demand curve for airline tickets shows the:
a) number of tickets the airline is willing to sell at each price;
b) number of people who need to travel by air;
c) quality of service that passengers demand when they buy a ticket;
d) number of tickets that will be purchased at each price.
2. In economic terms, an increase in the demand for a product means that:
a) the demand curve has shifted to the left;
b) the product's price has fallen and, as a result, consumers are buying more of
the product;
c) the product has become scarce for some reason;
d) consumers are now willing to purchase more of the product at each possible
price.
3. Which of the following will NOT, all else equal, cause demand for coffee to change?
a) a change in the price of coffee.
b) a change in the price of milk, a complement;
c) a change in the price of tea, a substitute;
d) an increase in average income.
4. A fall in the price of raw milk, used in the production of ice cream, will:
a) decrease the supply of ice cream, causing the supply curve of ice cream to shift to the
left;
b) increase the supply of ice cream, causing the supply curve of ice cream to shift to the
right;
c) have no effect on the supply curve of ice cream, but will cause a downward movement
along the supply curve of ice cream;
d) none of the above.
5. An increase in the price of cheese, all else equal, is likely to have all of the following effects
except a:
a) decrease in the quantity demanded of cheese;
b) decrease in the supply of pizza;
c) increase in demand for peanut butter (a substitute good);
d) decrease in the demand for apple pie (a complimentary good);
e) decrease in the supply of cheese.
6. If it is observed that, in a particular market, price has risen and quantity exchanged has
increased, it is likely that:
a) supply has increased;
b) supply has decreased;
c) demand has increased;
d) demand has decreased.
7. Excess supply (a surplus) for a commodity is ordinarily eliminated through market forces by:
a) price rising, demand decreasing, and supply increasing;
b)
price rising, quantity demanded decreasing, and quantity supplied increasing;
c) price rising, demand increasing, and supply decreasing;
d) price falling, quantity demanded increasing, and quantity supplied decreasing.
8. Which of the following best explains why the equilibrium price of coffee would increase at
the same time the equilibrium quantity would fall:
a) consumers but not producers of coffee expect a higher future price;
b) producers but not consumers of coffee expect a lower future price;
c) abnormally cold weather wreaks havoc with the coffee crop;
d) it is proved that drinking coffee is unhealthy.
9. An increase in the price of beef increases the demand for pork. Restoration of equilibrium in
the pork market will require:
a) a leftward shift of the supply curve;
b) a rightward shift of the supply curve;
c) a movement up along the supply curve;
d) a movement down along the supply curve.
10. Assuming that wheat and corn can both be grown on the same type of land, a decrease in the
price of corn, other things being equal, will cause:
a) a rightward shift of the supply curve for corn;
b) an upward movement along the supply curve for wheat;
c) a decrease in the opportunity cost associated with growing wheat;
d) a leftward shift in the supply curve for wheat.
11.
The table bellow shows quantity demanded and quantity supplied of widgets at each price.
P
Qd
Qs
€1.00
1.50
2.00
2.50
3.00
500
450
400
300
150
50
150
250
300
325
a) Sketch the supply curve and the demand curve.
b) Suppose that a reduction in the price of an important input used to produce widgets leads
to an increase in supply of widgets by 300 units at every price level. Assuming that
demand does not change, the new equilibrium price will be .....
12. Use the supply and demand curves to explain what would happen in the market for corn as a
result of each of the following:
a) bad weather wreaks havoc with the corn crop;
b) the government imposes a €5 price ceiling on corn;
c) the price of widgets ( a substitute) rises dramatically;
d) the government imposes higher tariffs on corn imports.
13. Evaluate the following statements:
a) “If consumers begin to expect that the price of a good will be lower in the future than it is
now, the price of the good falls now.”
b) “The law of demand states that the quantity demanded varies inversely with price.
However, everyone knows that a rise in demand leads to a rise in price, other things
equal.”