Supply and Demand – Some Review Questions
1. Define and sketch a demand and supply schedule and curve.
The demand schedule is a table that shows the relationship between the price
of the good and the quantity demanded. The demand curve is the graph of the
relationship between the price of a good and the quantity supplied.
Supply of
Dolls
price
1
2
4
6
9
35
130
320
500
690
Demand for
dolls
530
430
300
150
20
Supply for
Increase
135
230
420
600
790
Supply
Decrease
0
30
180
310
500
2. Create a supply and demand curve that portrays shifts in equilibrium and be
able to explain the relationship to such changes on price, demand or supply.
3. Illustrate an increase or decrease in quantity supplied or demanded.
4. Name and explain 5 nonprice determinants of supply and demand
-Consumer Income
-Prices of related goods
-Tastes
-Expectation
-Number of buyers
5. Name the two functions that markets play in an economy.
Buying and Selling.
6. Name and describe three ways that supply can be insufficient.
Shortage, Scarcity, Inadequacies.
7. Explain in words why supply curves slope upward.
Because when price increases, supply increases.
8. Explain in words why demand curves slope downwards.
Because when price increases, demand decreases.
9. The supply and demand schedules for an electric company are listed below:
Price
17
16
15
14
13
12
11
9
7
5
3
1
Quantity
Supplied
3
4
5
6
7
8
9
Quantity
Demanded
The price is in cents per kilowatt hour (kWh), and the quantity is millions of
kilowatt hours. The utility does not operate at prices less than l3 cents per
kWh.
a. Using an excel spreadsheet, carefully graph and label the demand and
supply curve for electricity. Export your graph onto your Word document.
b. What is the equilibrium price for electricity? The equilibrium quantity?
Label this point on the graph.
c. At a price of 17 cents per kWh, what it the quantity supplied? What is the
quantity demanded? What is the relationship between quantity supplied
and demanded? What term do economist use to describe this situation?
d. At a price of l4 cents per kWh, what is the relationship between quantity
supplied and quantity demanded? What term do economists use to
describe the situation?
e. Sometimes cities experience "blackouts," where the demands on the
utility are so high relative to its capacity to produce electricity that the
system shuts down leaving everyone in the dark. Using the analysis you
have just completed, describe an economic factor that could make
blackouts more likely to occur.
10. Continuing on from the previous problem, suppose new innovations in
energy efficiency reduce people's need for electricity. The supply side of the
market doe not change, but at each price buyers now demand 3 million
kilowatt hours fewer than before. For example, at a price of 11 cents per
kWh, buyers now demand only 6 kWh instead of 9 kWh.
a. On a new graph, draw supply and demand curves corresponding to prices
in cents per kWh or less, after the innovations in efficiency. Also, for
reference, mark the old equilibrium point from the previous exercise,
labeling it E1.
b. If the price were to remain at the old equilibrium level (determined
above), what sort of situation would result?
c. What is the new equilibrium price and equilibrium quantity? Mark this
point on your graph as point E2.
d. Has there been a change in demand? Has a change in the price (relative to
the original question) led to a change in quantity demanded?
e. Has there been a change in supply? Has a change in the price (relative the
original situation) led to a change in quantity supplied?
11. Create an example in words for each of the non-price determinants for
supply and demand.
Supply


Demand
Technology Better sewing
machines
Input prices
12. At a price of $5 per bag, William is willing to supply 3 bags of oranges,
Margarite 2 bags, and Felipe 5 bags. At a price of $7 per bag, William is
willing to supply 5 bags, Margarite 4 bags, and Felipe 7 bags. Graph and
carefully label the individual supply curves, and then graph the market
supply curve for oranges (at these two prices).
Challenge Question – we did not cover price floor or ceiling. See if you can
do this by looking up the definition.
13. Suppose a newspaper report indicates that the price of wheat has fallen. For
each of the following events, draw a supply-and-demand graph showing the
event's effect on the market for wheat. Then state whether or not the event
could explain the observed fall in the price of wheat.
a. A drought has hit wheat-growing areas.
b. The price of rice has risen, so consumers look for alternatives.
c. As a consequence of increasing health concerns, tobacco farmers have
begun growing other crops
d. The government has a price floor for wheat, and increases it.