Mr. Klatt
Your Name: Reem Al-Zahrani
Supply and Demand – November 24, 2009
Economics Test – Supply and Demand
1. Use your understanding of the non-determinants of supply and demand to address
the following questions.
Draw and state what happens for each situation. Copy the figures below on your
own Excel sheet to create a graph that explains the situation. Use the same data for
each question and just adjust the fourth column to suit your answer.
Here is an example:
The question would read: New health reports suggest that chocolate chips increase
intelligence quotients in high school students.
Price ($)
10
12
14
16
20
22
24
Demand
24
22
20
18
14
12
10
Supply
7
9
11
13
17
19
21
Increase in
Demand
29
27
25
23
19
17
15
Then merely state:
D shifts up
P rises
Q rises
The report increases the demand for chocolate chips causing the shift up in demand, a
price increase, and movement along the supply curve.
The questions:
1
Mr. Klatt
Your Name: Reem Al-Zahrani
Supply and Demand – November 24, 2009
a. Market for shoes: A new technology for shoe making means that shoes can be
made at a lower cost per pair.
Price ($)
10
12
14
16
20
22
24
Demand
24
22
20
18
14
12
10
Supply
7
9
11
13
17
19
21
Increase in
Supply
10
12
14
16
20
22
24
30
25
20
Demand
15
Supply
Increase in Supply
10
5
0
0
10
20
30
S shifts up
P rises
Q rises
The report increases the supply for a new technology for shoe making the shift up
in supply, a price increase, and movement along the demand curve
b. Market for Internet design services: Several thousand new graduates of design
schools enter the market.
Price ($)
10
12
14
16
20
22
24
Demand
24
22
20
18
14
12
10
Supply
7
9
11
13
17
19
21
Increase
in
Supply
12
14
16
18
22
24
26
2
Mr. Klatt
Your Name: Reem Al-Zahrani
Supply and Demand – November 24, 2009
30
25
20
Demand
15
Supply
10
Increase in
Supply
5
0
0
10
20
30
S shifts up
P rises
Q rises
The report increases the supply for several thousand new graduates of design
schools enter the market the shift up in supply, a price increase, and movement
along the demand curve
c. Market for meals: A booming economy raises the income of many households.
Price ($)
10
12
14
16
20
22
24
Demand
24
22
20
18
14
12
10
Supply
7
9
11
13
17
19
21
Increase in
Demand
26
24
22
20
16
14
12
30
25
Demand
20
15
Supply
10
Increase in
Demand
5
0
0
10
20
30
D shifts up
P rises
Q rises
3
Mr. Klatt
Your Name: Reem Al-Zahrani
Supply and Demand – November 24, 2009
The report increases the Demand a booming economy raises the income of many
households the shift up in supply, a price increase, and movement along the
demand curve
d. Market for grapes from California: A freeze in Chile, a major produced of fresh
fruit, raises the prices of Chilean grapes.
Price ($)
10
12
14
16
20
22
24
Demand
24
22
20
18
14
12
10
Supply
7
9
11
13
17
19
21
Increase
in
Demand
26
24
22
20
16
14
12
30
25
Demand
20
15
Supply
10
Increase in
Demand
5
0
0
10
20
30
D shifts up
P rises
Q rises
The report increases the Demand a freeze in Chile, a major produced of fresh fruit, raises
the prices of Chilean grapes the shift up in demand, a price increase, and movement along
the supply curve
e. Market for bottled water: A rumor circulates that the price of bottled water is
about to triple (Think demand side only).
Price ($)
10
12
14
16
20
22
24
Demand
24
22
20
18
14
12
10
Supply
7
9
11
13
17
19
21
Increase
in
Demand
28
26
24
22
18
16
14
4
Mr. Klatt
Your Name: Reem Al-Zahrani
Supply and Demand – November 24, 2009
30
25
20
Demand
15
Supply
10
Increase in
Demand
5
0
0
10
20
30
D shifts up
P rises
Q rises
The report increases demand the a rumor circulates that the price of bottled water
is about to triple (Think demand side only) the shift up in demand, a price increase,
and movement along the supply curve
f. Market for bananas: New health reports indicate that eating bananas leas to health
benefits, but at the same time, an infestation of insects reduces the harvest in
bananas world wide.
Price ($)
10
12
14
16
20
22
24
Demand
24
22
20
18
14
12
10
Supply
7
9
11
13
17
19
21
Increase
in
Demand
28
26
24
22
18
16
14
30
25
20
Demand
15
Supply
10
Increase in
Demand
5
0
0
10
20
30
5
Mr. Klatt
Your Name: Reem Al-Zahrani
Supply and Demand – November 24, 2009
D shifts up
P rises
Q rises
The report increases demand the indicate that eating bananas leas to health benefits, but
at the same time, an infestation of insects reduces the harvest in bananas world wide the
shift up in demand, a price increase, and movement along the supply curve
2. At a price of $8 per ticket, Shalimar goes to 2 movies per month. At a price of $10
per ticket, Shalimar goes to 1 movie, Wen goes to 0 movies, and Adam goes to 2
movies. Graph the individual and market demand curves at these two prices.
3. Suppose a newspaper report indicates that the price of wheat has fallen. For each
of the following events, draw a supply and demand curve that shows the event’s
effect on the price of wheat. Then state which event would explain the fall in the
price of wheat. (If time is a concern, just draw each graph on a piece of paper and
give it to Mrs. Harris. If time allows, use the date from #1).
a. A drought has hit wheat-growing areas.
30
25
20
Demand
15
Supply
decrease in supply
10
5
0
0
10
20
30
b. The price of rice has risen, so consumers look for alternatives.
30
25
20
Demand
15
Supply
10
Increase in
Demand
5
0
0
10
20
30
6
Mr. Klatt
Your Name: Reem Al-Zahrani
Supply and Demand – November 24, 2009
c. As a consequence of increasing health concerns, tobacco farmers have
begun growing other crops.
30
25
20
Demand
15
Supply
10
Increase in
Supply
5
0
0
10
20
30
d. The government has a price floor for wheat, and increases it.
30
25
20
Demand
15
Supply
10
Increase in
Demand
5
0
0
10
20
30
4. Match each concept in Column A with an example in column B.
Column A
Column B
a. substitute goods 2
1. self-interested rational behavior
b. a nonprice determinant of supply 3
2. tea and coffee
c. a nonprice determinant of demand 12 3. the price of resources
d. rationing 6
4. hunger
e. economist’s frequent assumption 9
5. milk producers supply more milk after
sales increase in all stores
f. derived demand 5
6. based on resources available a country
produces
g. inadequacy 4
7. wheat purchased by a bread
manufacturer
h. complementary goods 11
8. “Purchase a ticket to enter”
i. effective demand
9. OPEC raises oil prices
j. market adjustment 7
10. a consumer decides to purchase the
car she wants
7
Mr. Klatt
Your Name: Reem Al-Zahrani
k. cartel 1
l. why a PPF is curved outward 8
Supply and Demand – November 24, 2009
11. shoes and shoelaces
12. consumer income
8