SUPPLY AND DEMAND, Exercises of French

Download SUPPLY AND DEMAND and more Exercises French in PDF only on Docsity! Chapter 3 – Supply and Demand 1 Chapter 3 SUPPLY AND DEMAND Microeconomics in Context (Goodwin, et al.), 4th Edition Chapter Overview In this chapter, you’ll find the basics of supply and demand analysis. As you work through this chapter, you will start learning how to manipulate supply and demand curves as a way to analyze the relationships among prices, volume of production, and other factors. You will learn about the various factors that can shift a supply or demand curve up or down, and the concepts of equilibrium and market adjustment. Objectives After reading and reviewing this chapter, you should be able to: 1. Interpret supply and demand curves. 2. Understand the difference between a change in supply (demand) and a change in the quantity supplied (demanded). 3. List the nonprice determinants of supply by businesses and demand by households. 4. Explain how price adjusts due to changes in supply and demand. 5. Understand topics of market analysis including scarcity, shortage, inadequacy, and equity. 6. Explain the difference between accuracy and precision. Key Term Review demand supply market price market quantity sold positive (or direct) relationship individual supply market (or aggregate) supply supply schedule supply curve change in quantity supplied ceteris paribus change in supply nonprice determinants of supply demand schedule demand curve negative (or inverse) relationship market (or aggregate) demand individual demand change in the quantity demanded change in demand nonprice determinants of demand substitute good complementary good surplus shortage market equilibrium theory of market adjustment market disequilibrium markup (or cost-plus) pricing market value social value inadequacy precise accurate Chapter 3 – Supply and Demand 2 Active Review Fill in the Blank 1. A curve indicating the quantities that buyers are willing to purchase at various prices is known as a(n) ________________ curve. 2. Mark would like to buy a new car for $20,000. However, he doesn't have any savings and he doesn't qualify for a loan. Thus, his desire for a car does not translate into ___________________ demand. 3. Tabitha needs furniture for her room. She is deciding between a medium-sized couch and a large armchair. Either the couch or the armchair could fulfill her need for sitting space in the room. The couch and the armchair can be referred to as ___________________ goods. 4. When people eat french fries, they like to put ketchup on them. Due to an increase in the price of french fries, total sales of french fries decrease. At the same time, ketchup sales also decrease. This phenomenon can be explained by noting that french fries and ketchup are ____________________ goods. 5. Surplus and shortage are both instances of ____________________. 6. In general, in a basic model showing supply and demand, if the supply curve shifts to the right, equilibrium price will _______________ and equilibrium quantity supplied will __________________. True or False 7. The price of limes could be a nonprice determinant of the supply of lemons. 8. The demand curve for a good shows the same information as the demand schedule. 9. Tastes and preferences act as nonprice determinants of demand. 10. In general, an increase in demand tends to increase equilibrium price and decrease equilibrium quantity. 11. If both supply and demand increase, the price of the good will also increase. 12. If demand increases and supply decreases, the price of the good will increase. 13. The more precise a model is, the more likely it is to be accurate. Chapter 3 – Supply and Demand 5 2. The graph above shows supply and demand for hardcover English dictionaries. Suppose that a new dictionary resource is created on the Internet, decreasing people’s interest in buying large dictionaries in book form. For the questions below, state the answer in words and, where relevant, diagram your answer. a. What happens to the demand curve for hardcover dictionaries, as a result of this Internet innovation? (Answer in words and diagram.) __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ b. What happens to the supply curve as a result of the Internet innovation? (Answer in words and diagram.) __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ c. What happens to the price of hardcover dictionaries as a result of the innovation? Show the new price level on the graph you drew for part (b). __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ d. Suggest one or more factors that could prevent this market from adjusting to equilibrium. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Pr ic e of H ar dc ov er D ic tio na rie s Quantity of Hardcover Dictionaries S D Chapter 3 – Supply and Demand 6 3. Refer again to the graph above, showing the market for hardcover dictionaries. What are the two types of change in this market that would lead the equilibrium price to rise? ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ 4. In a popular new movie, a central character spends much of his time sitting on a white deck chair. Suddenly, white deck chairs come into fashion and everybody wants one. The graph below shows the market for deck chairs before the movie came out. a. On the diagram above, show what happens to the market for deck chairs as a result of the movie. b. Show the size of the shortage that exists in the short term, before the market adjusts to equilibrium. c. Label the new equilibrium point as E2. 5. Using the same example of the market in white deck chairs, describe and, on separate graphs, show the changes in equilibrium price and quantity that would occur in response to the following events. a. A key input for making deck chairs becomes more expensive (ceteris paribus). b. In a highly publicized event, someone falls off a poorly constructed deck chair and sustains a serious head injury (ceteris paribus). Quantity of deck chairs Pr ic e of d ec k ch ai rs S D Chapter 3 – Supply and Demand 7 Self Test 1. Suppose when the price of shirts increases from $20 to $25, the quantity supplied increases. This change is best described as … a. movement along a supply curve. b. a change in supply. c. movement along a demand curve. d. a change in demand. e. none of the above. 2. Which one of the following statements is false? a. Demand curves tend to slope downward. b. The relationship between price and quantity demanded is generally positive. c. The relationship between price and quantity supplied is generally direct. d. At equilibrium, the quantity demanded equals the quantity supplied. e. A shortage occurs when the quantity demanded exceeds the quantity supplied. Questions 3 to 5 refer to the following graph: 3. Based on the figure above, how many apartment owners would be willing to sell their apartments for $91,000? a. None b. One c. Two d. Six e. Ten The Supply Curve for Apartments 89 90 91 92 93 94 95 96 97 98 99 100 101 0 1 2 3 4 5 6 7 8 9 10 11 S Pr ic e of A pa rtm en ts (in $ 10 00 s) Quantity of Apartments Chapter 3 – Supply and Demand 10 11. Suppose the number of engineers graduating from college increases at the same time as the demand for engineers increases. Which one of the following is true? a. The number of engineers employed will increase, and engineer wages will increase. b. The number of engineers employed will increase, and engineer wages will decrease. c. The number of engineers employed will increase, but the effect on engineer wages is ambiguous. d. Engineer wages will increase, but the effect of the number of engineers employed is ambiguous. e. The effect on both engineer wages and the number of engineers employed is ambiguous. Question #12 refers to the following graph. 12. Assume that sofas and arm chairs are substitute goods. The graph shown above illustrates the demand curve for sofas. Which of the following events could have triggered the shift in demand from D1 to D2, as shown above? a. The price of sofas increased. b. The price of armchairs increased. c. The price of labor for making sofas increased. d. The price of sofas decreased. e. The price of armchairs decreased. 20 25 30 35 40 45 50 0 5 10 15 20 25 D1 D2 Pr ic e of S of as ($ ) Quantity of Sofas Chapter 3 – Supply and Demand 11 13. A bike shop in a small town has received a shipment of 10 new bicycles. The shop offers the bikes for sale at a price of $300 each. At this price, however, there are only two people in town who are willing to buy a bicycle. This situation can be described as a. disequilibrium b. shortage c. surplus d. equilibrium e. both a and c are correct Questions 14 to 16 refer to the graph below. 14. When the price of cars is $5000, which of the following terms is not an accurate description of the situation? a. Quantity demanded exceeds quantity supplied. b. A shortage exists. c. The market is in disequilibrium. d. Fewer than five cars are available for sale. e. The market is in equilibrium. 15. Beginning from the price of $5000, which of the following events would be predicted by the theory of market adjustment? a. Some buyers who are willing to pay more will bid the price of cars up. b. The market will remain in disequilibrium. c. Prices will fall. d. All buyers will remain in the market. e. The supply and demand curves will shift to achieve equilibrium. 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6 7 8 9 10 Quantity of Cars S D Chapter 3 – Supply and Demand 12 16. Now suppose that the local government invests in a new, very efficient fleet of buses. Now, it is easy and affordable to get from one place to another without having your own car. What change in the graph shown above is most likely to result from the new bus service? a. The supply curve shifts to the right. b. The supply curve shifts to the left. c. The demand curve shifts to the right. d. The demand curve shifts to the left. e. None of the above. 17. At the end of a hot day, ten people want to buy a glass of lemonade. However, the local lemonade stand only has five glasses of lemonade left. The lemonade stand operator sells the remaining five glasses to the five people who are willing and able to pay the most. This is an example of … a. a surplus b. rationing by price c. disequilibrium d. a shift in the demand curve e. a lottery 18. Suppose there is a drought that reduces the harvest of corn. At the same time, the demand for corn increases due to expanded use of ethanol fuels. Which one of the following statements is true? a. The price of corn will increase, but the effect on the quantity of corn sold is ambiguous. b. The price of corn will decrease, but the effect on the quantity of corn sold is ambiguous. c. The quantity of corn sold will increase, but the effect on the price of corn is ambiguous. d. The quantity of corn sold will decrease, but the effect on the price of corn is ambiguous. e. The effect on both the quantity of corn sold and the price of corn is ambiguous. 19. Which one of the following would be most likely to increase (shift to the right) the demand curve for public transportation? a. Increasing the frequency of bus stops b. Lower fares for bus tickets c. Lower prices for airline tickets d. Higher gasoline prices e. Lower automobile prices Chapter 3 – Supply and Demand 15 1. d. 1. e. The supply curve has shifted to the right. The equilibrium price has fallen, and equilibrium quantity has risen. 2. a. The demand curve shifts to the left. 2. b. The supply curve does not shift. 2. c. The price of hardcover dictionaries at the new equilibrium, E2, is lower. d. Many answers are possible here. For example, dictionary producers might continue charging high prices out of habit, failing to recognize – or not wanting to admit – that demand has changed significantly. Pr ic e of C ar s Quantity of Cars S2 D1 E1 S1 E2P2 Q2 Pr ic e of H ar dc ov er D ic tio na rie s Quantity of Hardcover Dictionaries S D1D2 Pr ic e of H ar dc ov er D ic tio na rie s Quantity of Hardcover Dictionaries S D1D2 P2 P1 E2 E1 Chapter 3 – Supply and Demand 16 3. The equilibrium price could rise as a result of the supply curve shifting to the left (i.e. a decrease in supply), or as a result of the demand curve shifting to the right (i.e. an increase in demand). 4. a.. The demand curve shifts to the right, as shown below. 4. b. 4. c. Quantity of deck chairs Pr ic e of d ec k ch ai rs S D1 D2 Quantity of deck chairs Pr ic e of d ec k ch ai rs S D1 D2 shortage Quantity of deck chairs Pr ic e of d ec k ch ai rs S D1 D2 shortage E1 E2 Chapter 3 – Supply and Demand 17 5. a. The supply curve shifts to the left, leading to a higher equilibrium price and lower equilibrium quantity. 5. b. The demand curve shifts to the left, leading to a lower equilibrium price and lower equilibrium quantity. Answers to Self Test Questions 1. a 11. c 2. b 12. e 3. b 13. e 4. b 14. e 5. e 15. a 6. d 16. d 7. a 17. b 8. e 18. a 9. a 19. d 10. e 20. d Quantity of deck chairs Pr ic e of d ec k ch ai rs S1 E1 D1 S2 E2 Quantity of deck chairs Pr ic e of d ec k ch ai rs S1 E1 D1D2 E2