PRACTICING DEMAND
1. The law of demand states- when the price increases, the quantity demanded will ___________.
When the price decreases, the quantity demanded will _______________.
2. If a change in price has an effect on the change in quantity, this is known as (elastic / inelastic)
demand. Give a specific example of this type of demand.
3. If the federal government says that fish is healthy for you, the demand for fish will
(increase / decrease). Which determinant of demand causes this change? _____________________
Which way will the demand curve shift? (left / right) Draw the new demand curve- Label it D1.
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4. Economists announce that the unemployment rate will increase over the next six months.
The demand for new homes will (increase / decrease). Which determinant causes this change?
_____________________. Which way will the demand curve shift? (left / right) Draw the new
demand curve- Label it D2
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5. The price of syrup increases, the demand for pancakes will (increase / decrease).
Which determinant causes this change? _________________________.
Which way will the demand curve shift? (left / right) Draw the new demand curve- Label it D3.
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6. The price of airline tickets goes up, the demand for train tickets will (increase / decrease).
Which determinant causes this change? ___________________________ Which way will the
demand curve shift? (left / right) Draw the new demand curve-Label it D4.
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7. Provide a complement for the following items:
car- __________________
bread-__________________
shoes-_______________
8. Provide a substitute for the following items:
car-___________________
pen-____________________
television-____________
9. Plot the points for the demand curve and label the line D1.
Demand Schedule #1
Price
Quantity
$9.00
1
$6.00
3
$5.00
4
$2.00
6
$1.00
7
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Demand Schedule #2
Price
Quantity
$9.00
3
$8.00
4
$5.00
6
$4.00
7
$1.00
9
Use the graph above, plot the points for the new demand curve and
label it D2
10. Does a shift from D1 to D2 reflect an increase or a decrease in demand? _________________
Identifying the determinants of demand. You have seen have how an increase in demand is
depicted on a graph by a shift in the demand curve.
• When the demand curve shifts upward and to the right, this is indicative of an increase in
demand.
• When the demand curve shifts to the left, this is indicative of a decrease in demand.
• Factors that result in a change in demand are the determinants of demand.
Complete the table below. For each determinant of demand:
• indicate whether demand will increase or decrease;
• provide an explanation as to why.
Determinant of demand
Population increases
Population decreases
Increase in most peoples’ income
Decrease in most peoples’ income
Price of substitute increases
Price of substitute decreases
Price of complementary good
increases
Price of complimentary good
decreases
Product becomes a popular fad
(change in taste of buyers)
Product now out of fashion (change in
taste of buyers)
There is an expectation that the price
of the product will soon fall
There is a fear that the economy will
go into a recession where many firms
will fail and unemployment will
increase
Demand
increases or
decreases?
Explanation
Movement along the curve or a shift in the demand curve? Complete the table below by
indicating whether each scenario results in a change in the quantity demanded (movement along
the demand curve), or a change in demand (shift in the demand curve). If there is a shift in the
demand curve, indicate whether the curve shifts up or down.
Scenario
1. There is an outbreak of the flu and sales of latex gloves
skyrocket.
2. A nail salon cuts the price it charges for manicures and
more clients come.
3. A chain of department stores extends the hours that stores
will remain open and total sales for the chain has increased.
4. The US Census Bureau has announced that there is baby
boom in the United States and sales of baby carriages have
increased.
5. John’s Bicycle shop increases the prices of bicycles and
sales decrease.
6. The City of New York has cut the number of city
employees by 10% and sales of big screen televisions falls.
Movement or shift up or
shift down?
PRACTICING WITH ELASTICITY
Using Total Revenue Test
For each problem, complete the mathematics, fill in the answer blanks and circle the correct
answer (↓ or ↑) for “Price” and “Total Revenue”. Then, calculate the elasticity and write whether
the product is price elastic or price inelastic (between the two prices).
1. Price rises from $5 to $6. Quantity demanded decreases from 15 to 10.
a. Old price x quantity demanded = old revenue
___________
_________
_________
b. New price x quantity demanded = new revenue
_________
___________
c. Price ↓ ↑
Total Revenue ↓ ↑
_________
d. Elasticity = _______________________
e. The good is: ELASTIC or INELASTIC
2. Price falls from $20 to $15. Quantity demanded increases from 1,000 to 1,500.
a. Old price x quantity demanded = old revenue
___________
_________
_________
b. New price x quantity demanded = new revenue
_________
___________
c. Price ↓ ↑
Total Revenue ↓ ↑
_________
d. Elasticity = _______________________
e. The good is: ELASTIC or INELASTIC
3. Price rises from $2.10 to $2.50. Quantity demanded decreases from 1,100 to 1,000.
a. Old price x quantity demanded = old revenue
___________
_________
_________
b. New price x quantity demanded = new revenue
_________
___________
c. Price ↓ ↑
Total Revenue ↓ ↑
_________
d. Elasticity = _______________________
e. The good is: ELASTIC or INELASTIC
4. Price falls from $4 to $3. Quantity demanded increases from 1,100 to 1,500.
a. Old price x quantity demanded = old revenue
___________
_________
_________
b. New price x quantity demanded = new revenue
_________
___________
c. Price ↓ ↑
Total Revenue ↓ ↑
_________
d. Elasticity = _______________________
e. The good is: ELASTIC or INELASTIC
5. The figure shows the demand curve for popsicles. Is the
elasticity of demand when the price of a popsicle
increases from $0.30 to $0.50 elastic or inelastic?
________________________________
In Your Words:
6. Why do price and total revenue go in opposite directions when the demand for the good
is elastic?
7. Why do price and total revenue go in the same direction when the demand for the product
is inelastic?
Using Percent Change
8.
Dan sells newspapers. Dan says that a 10 percent increase in the price of a newspaper
will decrease the quantity of newspapers demanded by 8 percent. Is the demand for newspapers
elastic, inelastic, or unit elastic?
____________________________________
9.
A video store owner noticed a 5% drop in rentals of DVDs after raising her prices 10%.
Are DVD rentals elastic, inelastic, or unit elastic?
____________________________________
PRACTICING SUPPLY
Create a supply curve
The survey to assess students’ willingness to work at the library was distributed to all seniors in
the school; the total hours that students are willing to work at the different hourly rates are
presented in the supply schedule for part time workers below:
Supply Schedule for Part Time Workers
Hourly rate
# hours seniors are willing to
work
$30
1500
$25
1440
$20
1380
$15
1100
$10
840
$7
480
$5
240
$3
0
$2
0
$1
0
Using the data in the supply schedule for part time workers, draw the supply curve.
Supply of Part Time Workers
$30
$25
Hourly rate
$20
$15
$10
$7
$5
$3
$0
200
400
600
800
1000
1200
1400
1600
1800
2000
Quantity of Part Time Workers Supplied
In your own words, summarize the information displayed in the graph:
2200
2400
2600
Changes in Supply – A Shift in the Supply Curve
The supply schedule below presents the results of a survey of seniors only, and seniors and
juniors, indicating the number of hours these students would be willing to work in the school
library at different hourly rates of pay.
Hourly rate
$30
$25
$20
$15
$10
$7
$5
$3
$2
$1
Supply Schedule of Student Workers’ Hours
# hours juniors are
# hours seniors are
# hours juniors and
willing to work (S1)
willing to work (S2)
seniors are willing to
work (S3)
1125
1500
2625
1080
1440
2520
1035
1380
2415
825
1100
1925
630
840
1470
360
480
840
180
240
420
0
0
0
0
0
0
0
0
0
Exercise 1: Using the data from the supply schedule for part time workers, draw supply curves
S2 and S3 on the graph below.
Supply of Part Time Workers
35
30
Hourly Rates
25
20
15
10
5
0
0
500
1000
1500
2000
Quantity of Part Time Hours
2500
3000
Refer to the chart you have drawn and answer the following questions:
1. When the hourly rate is $20, compare the quantity of hours students are willing to
work at supply levels S2 and S3.
2. When supply increases at all price levels, the supply curve shifts in which direction:
right or left?
Exercise 2: In the table below, complete the following:
1. Record the effect on supply.
2. In each instance, state if the supply curve shifts right or left.
3. In your own words provide an explanation of the suppliers’ reactions.
Determinant of supply
A decrease in
the price of
inputs.
A change in the price of
inputs (raw materials,
wages, etc.)
An increase in
the price of
inputs.
Increase in the
number of firms
in the industry
A change in the number of
firms in the industry.
Decrease in the
number of firms
Increase in taxes
A change in taxes
Decrease in
taxes
New technology
Technology development
Effect on supply
Graph goes Right
or Left?
Explanation
Use the following information to make a graph of the supply curve and then use that
information to adjust the curve the directions needed with the following scenarios. Be
sure to do each scenario in a different color and use a key or labels.
PRICE
$20
$10
7500
15000
QUANTITY
PRICE
QTY OF
PEACHES
$2.50
1000
$5.00
2250
$7.50
4000
$10.00
6000
$12.50
8750
$15.00
10000
$17.50
12500
$20.00
15000
1. How does the graph show us the “law of supply?”
2. IF THE COST OF PRODUCING ONE SINGLE PEACH IS $1.50, what is the profit
made at each of the below prices?
PRICE
$2.50
$5.00
$7.50
$10.00
$12.50
$15.00
$17.50
$20.00
PROFIT MADE
3. If peach farmers choose to start growing apples due to a new government incentive plan,
how would that affect the supply curve? Draw a new supply line in a different color or
with a new label and EXPLAIN WHY IT MOVES THIS WAY.
4. If a new chemical allows trees to produce more peaches on every tree, how would that
affect the supply curve? Draw a new supply line in a different color or with a new label
and EXPLAIN WHY IT MOVES THIS WAY.
5. If the government enforces a new excise tax on peaches, how would that affect the
demand curve? Draw a new supply line in a different color or with a new label and
EXPLAIN WHY IT MOVES THIS WAY.
For each problem, answer the question then illustrate the change that will occur on the
graph below. First draw the original supply line and label it “S”. Then draw the new
supply line and label it “S1”.
1. Sony purchases new technology that will allow more Playstation 3s to be produced each hour.
This will ______________________ supply.
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2. Company B attempts to increase profits by raising prices. How will this change the supply
curve?
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3. Droughts in the Midwest cause food prices to soar. This will cause Richardmart to
____________________ its supply of grocery products.
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4. The government places strict pollution regulations on automotive producers in Detroit. How
will this affect Ford’s supply levels?
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5. A forest fire destroys thousands of acres of woodlands about to be harvested. This will cause
the Harlan Cabinet Company to ______________________ its supply of cabinets.
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6. A development firm has bought all the land around a large lake in northern Arkansas. The
local government places a high property tax on the land to raise money for a nearby school.
What type of supply does the land have?
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7. A government agency feels too much wheat is being produced and stops all subsidies to
wheat farmers for one year. This will cause wheat production to __________________.
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8. Chevrolet announces it will stop production of Corvettes after next year. Furthermore, the
final edition Corvette is a limited series and only 5,000 will be produced. Draw the supply
curve for Corvette production for next year.
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