Mr. Maurer
AP Economics
Name: ________________________
Chapter 3 and Chapter 4 (p. 85 – 90) Review
Supply and Demand
1. Assume that the equilibrium price in the diagram at left is
P1. Identify the area of consumer surplus using the labeled
points on the graph.
2. Now assume an effective price floor is established at P2.
Identify the new area of consumer surplus.
3. What area represents the reduction in consumer surplus
caused by the price floor?
--------------------------------------------------------------------------------------------------------------------4. A movement from Point A to Point B in the diagram at left
would indicate a reduction in (circle one).
a. demand
b. quantity demanded
5. Name one factor that could cause this movement.
--------------------------------------------------------------------------------------------------------------------6. Identify three factors that could cause the change depicted
in the graph at left.
--------------------------------------------------------------------------------------------------------------------7. A reduction in the
price of tomatoes in
consistent with which
graph at left?
A
B
8. Assume the market pictured at left is at equilibrium
without government interference. Identify the
following:
a. The area of consumer surplus.
b. The area of producer surplus.
c. The area of deadweight loss.
9. Now assume that an effective price ceiling is established. (Use the graph above.)
a. Which of the labeled prices must be the new price?
b. Identify the new area of producer surplus with the price ceiling in place.
c. Identify the new quantity sold.
d. Identify the amount of the shortage created by the price ceiling.
e. Is the area of deadweight loss created by the price ceiling identifiable by a letter or
letters? Explain.
10. Instead now assume that an effective price floor is established. (Continue using the graph
above.)
a. Which of the labeled prices must be the new price?
b. Identify the new area of producer surplus with the price floor in place. Assume at this
point, that the government is not buying the surplus production.
c. Identify the new quantity sold. Again, without any government purchases.
d. Will the price floor create a surplus or a shortage? What will be the amount of the
surplus or shortage?
e. Identify the area of deadweight loss created by the price floor.
11. Identify the effect on price and quantity sold in each of the following circumstances (OK,
you’re done with the graph above):
a. Demand increases and supply increases.
b. Demand increases and supply decreases.
c. Demand decreases and supply increases.
d. Demand decreases and supply decreases.
12. Good X and Good Y are substitutes. What will happen to demand for Good Y if the price of
Good X increases?
13. Good X and Good Y are complements. What will happen to demand for Good Y if the price
of Good X increases?
14. Indicate the effect on supply, demand, price, and quantity that each of the following
scenarios would cause:
A. Lowered cost of raw materials and increased popularity of the product
B. Increased cost of raw materials and increased popularity of the product
C. Decrease in the number of producers and increased numbers of consumers
D. Decrease in the number of producers and an increase in the price of a substitute good
E. An increase in the price of other goods that could be made by the producer and an
increase in the incomes of the consumers of the good in question
15. Differentiate between normal goods and inferior goods.
16. Explain why each of the following creates deadweight loss and results in a loss of total
surplus.
a. a price ceiling
b. a price floor
c. a quota (quantity control)