1. Shift in Demand or Supply
Suppose we are analyzing the market for hot chocolate. On a separate piece of paper,
graphically illustrate the impact each of the following would have on demand or supply.
Also show how equilibrium price and quantity have changed.
a. Winter starts and the weather turns sharply colder.
b. The price of tea, a substitute for hot chocolate, falls.
c. The price of cocoa beans decreases.
d. The price of whipped cream falls.
e. A better method of harvesting cocoa beans is introduced.
f. The Surgeon General of the U.S. announces that hot chocolate cures cancer.
g. Protesting farmers dump millions of gallons of milk, causing the price of milk to
rise.
h. Consumer income falls because of a recession and hot chocolate is considered a
normal good.
2. Equations, surplus or shortage
Given Qd = 20 – (1/5)P and Qs = P – 10 the supply and demand for hiking boots,
a. solve for equilibrium price and quantity, then graph
b. suppose Boulder Parks Dept. closes 20 hiking trails to the public, causing
the demand for boots to change to Qd = 8 – (1/5)P
Solve for the new equilibrium price and quantity, then graph it on the graph
from part a.
c. illustrate the original and new equilibrium on one graph.
a.
Qd = Qs
20 – (1/5)P = P – 10
30 = (6/5)P
30 ( 5/6) = P
25 = P*
b.
Qd = Qs
8 – (1/5)P = P - 10
18 = (6/5)P
18(5/6) = P
15 = P*
plug P* into either Qs or Qd equation to find Q*
Q = P – 10
Q = 25 – 10
Q* = 15
plug P* into either Qs or new Qd equation to find Q*
Q = P – 10
Q = 15 – 10
Q* = 5
P
100
S
40
25
15
10
D2
5
15
D1
Q