Demand side of market

3.1   The Demand Side of the Market

1) The market for energy drinks has grown rapidly over the past several years. One report predicts that energy drinks might replace coffee for the current generation of teens and young adults. This report implies that energy drinks and coffee are
B) substitutes.

2) What is the difference between an "increase in demand" and an "increase in quantity demanded"?
B) An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.

3) If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as
B) a decrease in quantity demanded.

4) The law of demand implies, holding everything else constant, that
A) as the price of bagels increases, the quantity of bagels demanded will decrease.


5) Holding everything else constant, an increase in the price of MP3 players will result in
D) a decrease in the quantity of MP3 players demanded.

Table 3-1

Loose Leaf Tea
Price per lb.
(dollars)	Sunil's
Quantity Demanded (lbs)	Mia's
Quantity Demanded (lbs)	Rest of Market
Quantity
Demanded (lbs)	Market
Quantity Demanded (lbs)
$8	  4	0	30
  6	  7	2	40
  5	  9	3	51
  4	12	5	64
  3	15	8	90

6) Refer to Table 3-1.  The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be
B) 63 lbs.

7) Refer to Table 3-1.  The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market.  If the price of loose-leaf tea rises from $3 to $4, the market quantity demanded would
A) decrease by 32 lbs.

8) The income effect of a price change refers to the impact of a change in
D) the price of a good on a consumer's purchasing power.

3.2   The Supply Side of the Market

1) A supply schedule
A) is a table that shows the relationship between the price of a product and the quantity of the product supplied.

2) If, in the market for oranges, the supply has increased then
A) the supply curve for oranges has shifted to the right.
Answer:  A

3) What is the difference between an "increase in supply" and an "increase in quantity supplied"?
D) An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

4) Which of the following would cause a decrease in the supply of milk?
C) an increase the price of a product that producers sell instead of milk
Answer:  C
Figure 3-2




5) Refer to Figure 3-2. An increase in price of inputs would be represented by a movement from
D) S2 to S1.
3.3   Market Equilibrium: Putting Demand and Supply Together

1) Which of the following is the correct way to describe equilibrium in a market?
B) At equilibrium, quantity demanded equals quantity supplied.

Figure 3-3



2) Refer to Figure 3-3. The figure above shows the supply and demand curves for two markets: the market for original Picasso paintings and the market for designer jeans. Which graph most likely represents which market?
A) Graph B represents the market for original Picasso paintings and Graph A represents the market for designer jeans.

Figure 3-4


3) Refer to Figure 3-4.  If the price is $10,
B) there would be a shortage of 600 units.

4) Refer to Figure 3-4.  At a price of $10, how many units will be sold?
A) 200

5) Refer to Figure 3-4.  If the current market price is $10, the market will achieve equilibrium by
D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.
Answer:  D

6) Assume there is a shortage in the market for digital music players.  Which of the following statements correctly describes this situation?
B) Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.

7) Which of the following is evidence of a surplus of bananas?
B) The price of bananas is lowered in order to increase sales.


8) Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln.  What is a reason for this difference in price?
C) There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.

3.4   The Effect of Demand and Supply Shifts on Equilibrium

1) Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity.  What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
B) S decreases, D no change, P increases, Q decreases

2) Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?
D) research finds that consumption of olive oil reduces the risk of heart disease

3) Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
A) a decrease in the price of flour

4) Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?
B) The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right.

Figure 3-5





5) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets.  Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?
D) Panel (d)

6) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for women's clothing.  Which panel best describes what happens in this market when the wages of seamstresses rise?
B) Panel (b)

7) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for almonds.  Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?
A) Panel (a)





8) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for Fruitopia, a soft drink.  Which panel describes what happens in the market for Fruitopia when the price of Snapple, a substitute product, decreases?
D) Panel (d)

9) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for potatoes and that steak and potatoes are complements.  What panel describes what happens in this market when the price of steak rises?
D) Panel (d)

10) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for rice.  What happens in this market if buyers expect the price of rice to fall?
D) Panel (d)

11) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for used clothing, an inferior good.  Which panel describes what happens in this market as a result of a decrease in income?
C) Panel (c)