Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
CHAPTER TWO
Answers to Test Your Understanding Questions
1. a)
Price
Total Quantity Demanded
$4.00
3.50
3.00
2.50
2.00
1
2
3
4
5
b) Downward sloping.
c) $3
2. A surplus will lead to competition amongst sellers causing the price to fall. This will
result in an increase in the quantity demanded and a decrease in the quantity supplied.
A shortage will lead to competition amongst buyers causing the price to rise. This will
result in a decrease in the quantity demanded and an increase in the quantity supplied.
3. a) $3.50 and 48.
b) See the following table:
Price
$2.00
2.50
3.00
3.50
4.00
Quantity
demanded
60
56
52
48
44
Quantity Surplus/Shortage
Supplied
30
-30
36
-20
42
-10
48
0
54
+10
$3.50 is the only price at which there is neither a surplus nor a shortage.
c) There would be a shortage of 20. As a result, the price would rise and the quantity
traded would increase from 36 to 48.
d) There would be a surplus of 10. As a result, the price would fall and the quantity
traded would increase from 44 to 48.
4. The change from D1 to D2 represents an increase in demand. Such an increase could
occur if the price of a complementary product like beer decreased or alternatively if
the price of a substitute like nuts increased.
5. a)
b)
c)
d)
Increase in demand; increase in price; increase in the quantity traded.
Decrease in demand; decrease in price; decrease in the quantity traded.
Increase in demand; increase in price; increase in the quantity traded.
Increase in demand; increase in price; increase in the quantity traded.
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Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
e) Decrease in demand; decrease in price; decrease in the quantity traded.
6. a) $5.00 and 100; see the following figure.
40
80
120
160
200
240
280
Quantity of strawberries
b) See the following table.
Price
$4.00
4.50
5.00
5.50
Quantity
Demanded
140
120
100
80
Supply 2
90
120
150
180
$4.50 and 120.
7. a)
b)
c)
d)
e)
f)
g)
h)
Decrease in supply; increase in price; decrease in quantity traded.
Increase in supply; decrease in price; increase in quantity traded.
Decrease in supply; increase in price; decrease in quantity traded.
Increase in supply; decrease in price; increase in quantity traded.
Increase in supply; decrease in price; increase in quantity traded.
Decrease in supply; increase in price; decrease in quantity traded.
Decrease in supply; increase in price; decrease in quantity traded.
Decrease in supply; increase in price; decrease in quantity traded.
8. a)
b)
c)
d)
e)
f)
g)
h)
Decrease in demand; decrease in price; decrease in quantity traded.
Increase in supply; decrease in price; increase in quantity traded.
Increase in supply; decrease in price; increase in quantity traded.
Increase in demand; increase in price; increase in quantity traded.
Decrease in demand; decrease in price; decrease in quantity traded.
Decrease in supply; increase in price; decrease in quantity traded.
Increase in demand; increase in price; increase in quantity traded.
Increase in demand; increase in price; increase in quantity traded.
2
Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
Answers to Connect Study Problems
1.
a) See the following figure:
Figure 2.15 (completed)
b) Price:
$3
2. a) Price: $2
quantity:
60 (Where the demand and supply curves intersect.)
quantity: 40 (Where the demand and supply curves intersect.)
b) surplus of 15 units. (The quantity demanded exceeds the quantity supplied by 3
squares. Each square is worth 5 units.)
c) shortage of 30 units. (The quantity supplied exceeds the quantity demanded by 6
squares. Each square is worth 5 units.)
3. a) Price = $6; quantity = 150 (Where the quantity demanded is equal to the quantity
supplied.)
b) See the following table:
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Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
Table 2.13 (Completed
Price
0
2
4
6
8
10
Quantity Demanded
180
170
160
150
140
130
c) Price = $4; quantity = 160
column quantity supplied.2)
Quantity Supplied
90
110
130
150
170
190
Quantity Supplied 2
120
140
160
180
200
220
(Where the quantity demanded is equal to the new
d) surplus of 60 (At $8 the quantity supplied of 200 exceeds the quantity demanded of
140 by 60.)
4. See the following table:
Table 2.14 (Completed)
+/−
kilo ($)
18
20
22
24
26
28
30
−90
−60
−30
0
+30
+60
+90
(At a price of $18, the quantity demanded exceeds the quantity supplied by 9 squares.
Each square is worth 10 units. At $20, the difference is 6 squares, or 60 and so on.)
5. a) There was a decrease of 100 in the quantity demanded. (When the price
changed, it led to a change in the quantity demanded from 4800 to 4700).
b) There was an increase of 300 in the demand. (Every quantity demanded increased
by 300 between 2011 and 2012.)
c) There was a decrease of 200 in the demand. (Every quantity demanded decreased
by 200 between 2012 and 2013.)
d) There was an increase of 100 in the quantity demanded. (When the price
changed, it led to a change in the quantity demanded from 4900 to 5000.)
6. a) $350. (This is the price at which the quantity supplied of 79 000 equals the quantity
demanded, i.e. there will not be a surplus or a shortage.)
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Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
b) There would be a shortage of 30 000 tickets. The quantity demanded of 109 000
exceeds the quantity supplied of 79 000 by this amount.)
c) See the following table:
Table 2.15 (Completed)
TABLE 2.15
Price ($)
per ticket
150
200
250
300
350
400
450
Quantity demanded 1
Quantity supplied
Quantity demanded 2
119 000
109 000
99 000
89 000
79 000
69 000
59 000
79 000
79 000
79 000
79 000
79 000
79 000
79 000
99 000
89 000
79 000
69 000
59 000
49 000
39 000
d) $250 (The quantity demanded 2 is 20 000 fewer at each price. The new equilibrium
is where the new quantity demanded 2 equals the quantity supplied of 79 000.)
7. a) See the following table:
Table 2.16 (Completed)
Price
Quantity supplied
Quantity demanded
Surplus/shortage
1.00
100
160
- 60
1.50
110
155
- 45
2.00
120
150
- 30
2.50
130
145
- 15
3.00
140
140
0
3.50
150
135
+ 15
4.00
160
130
+ 30
4.50
170
125
+45
5.00
180
120
+60
(Starting at a quantity supplied of 100, the numbers increase by 10 units; starting with a
quantity demanded of 160, the numbers decrease by 5).
b) price = $3. (Where the quantity supplied is equal to the quantity demanded.)
c) surplus of 45 (The quantity supplied of 170 exceeds the quantity demanded of 125
by this amount).
8. a) shortage of 15; quantity sold = 60
b) $14 (If you extend the quantity of 60 – answer a) – up to the demand curve it
touches the demand curve at a price of $14.)
c) surplus of 30. (At a price of $14 – answer b) – the quantity supplied of 90
exceeds the quantity demanded of 60 by 30 units.
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Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
9. a) Surplus of 30. (At $14 the quantity supplied exceeds the quantity demanded by
3 squares, or 30 units.)
quantity sold: 60 units. (This is the quantity demanded at $14; the quantity
supplied is irrelevant.)
b) Minimum price: $8. (If you extend the quantity of 60 – answer a) – up to the
supply curve it touches the demand curve at a price of $8.)
c) shortage of 15. (At a price of $8 – answer b) – the quantity demanded of 75
exceeds the quantity supplied of 60 by 15 units.
10.
a)
See column 4 of the following table:
Table 2.17 (Completed)
1
2
3
4
5
6
Price per
carton
Quantity
demanded
(1)
120
115
110
105
100
95
90
Quantity
supplied
(1)
60
70
80
90
100
110
120
Quantity
demanded
(2)
90
85
80
75
70
65
60
Quantity
demanded
(3)
135
130
125
120
115
110
105
Quantity
supplied
(2)
105
115
125
135
145
155
165
2.00
2.25
2.50
2.75
3.00
3.25
3.50
(Since the price of the complementary product has increased, the demand for probiotic
yoghurt will decrease by 30 units at each price.)
b) Price: $2.50
quantity: 80. (This is where the quantity supplied in column 3 is
equal to the new quantity demanded in column 4.)
c) See column 5 of Table 2.17 (Completed). (Since probiotic yoghurt is a normal
product, the demand increases by 15 to all the quantities in Column 2.)
d) Price: $3.25
quantity: 110. (This is where the quantity supplied in column 3 is
equal to the new quantity demanded in column 5.)
e) See column 6 of Table 2.17 (Completed). (Since the price of the factors decreased,
the supply increases by 45 to all the quantities in Column 3.)
f) Price: $2.25
quantity: 115. (This is where the quantity demanded in column 2
is equal to the new quantity supplied in column 6.)
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Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
Answer to Comprehensive Problem
a) See the following figure:
Figure 2.19 (Completed)
The plotting of the curves is straightforward. For the demand curve, plotting just the
first point (price $100 and quantity demanded 130) and the last point (price $700,
quantity demanded 10) is sufficient. Similarly with the supply curve.
b) Equilibrium price: $500; equilibrium quantity: 50
c) Surplus of 30.
A price of $600 is above the equilibrium price of $500. Any price above equilibrium
will produce a surplus because the quantity supplied will exceed the quantity
demanded. The amount of the shortage is the distance between the curves. In this case
it is 3 squares or 30 units.
d) See the following table:
Table 2.18 (Completed)
Price ($)
Quantity demanded
Quantity demanded 2
Quantity supplied
Quantity supplied 2
100
130
190
10
15
200
110
170
20
30
300
90
150
30
45
400
70
130
40
60
500
50
110
50
75
600
30
90
60
90
700
10
70
70
105
e) An increase in the demand of 60 means that the demand curve shifts parallel to
the right by 6 squares to D 2 in Figure 2.16. D 2 intersects with S 1, at e2.
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Answer Key, Principles of Microeconomics, 8th Edition — Chapter 2
f) Equilibrium price: $700; equilibrium quantity: 70 (Where the quantity demanded
2 equals the quantity supplied.)
g) See the Table 2.18 (Completed):
h) An increase in supply of 50% means that the supply curve shifts right to reflect a
quantity which is 50% higher at each price level (e.g. at price $300 it is now
45 rather than 30). This is plotted above as S 2 in Figure 2.16. The intersection
with the D2 curve is marked as e 3.
i) Equilibrium price: $600; and equilibrium quantity: 90 (Where the quantity
demanded 2 equals the quantity supplied 2.)
APPENDIX TO CHAPTER TWO
1. P = 6;
Q = 28.
2. a) P = 15;
Q = 25.
b) Shortage of 12.
c) P = 17;
Q = 27.
3. a) Qd = 244 – 4P
b) Qs = –8 + ½ P
c) P = 56;
Q = 20
4. a) Qd = 675 – 100P (or P = 6.75 – 0.01Qd).
b) Qs = 50P (or P = 0.02Qs)
c) P = 4.5;
Q = 225
5. a) shortage of 60. (Qd = 185; Qs = 125)
b) surplus of 24. (Qd = 164; Qs = 188
6. a) P = 70. (Solve the equation: 380 = 100 + 4P)
b) Qd = 310. (Plug 70 into the demand equation.)
c) Surplus of 70. (Qd = 310 and Qs = 380).
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