ECON 1001AEF / A121F

Tutorial Notes (Topic 3 Ch4)

Demand and Supply

Outline
• Outline
• Competitive Markets
• Demand
• The Law of Demand
• Demand Schedule and Demand Curve
• Individual Demand and Market Demand
• Changes in Demand
• Supply
• The Law of Supply
• Supply Schedule and Supply Curve
• Individual Supply and Market Supply
• Changes in Supply
• Market Equilibrium
• Price: A Market’s Automatic Regulator
• Effects of Changes in Demand on Market Equilibrium
• Effects of Changes in Supply on Market Equilibrium
• Discussion Questions
Competitive Markets
• Competitive Market : a market that
has many buyers and many sellers
• No one (single buyer or single seller)
can influence the price of the product
bought/sold
• Price is determined by the interaction
of market demand and market supply
• Buyers and sellers are price takers :
ie. buyers pay the market equilibrium
price & sellers receive (accept) the
market equilibrium price
Demand
• The quantity demanded for a
good is the amount of a good,
service, or resource that people
are willing and able to buy
during a specified period at a
specified price.
• Example :
• The quantity demanded for coffee
in a day at a price of US$8 per cup
• The quantity demanded for
waitresses in a month at a price of
US$2,000 per month
The Law of Demand
Other things remaining the same,
• If the price of the good rises,
the quantity demanded of that
good decreases.
• If the price of the good falls,
the quantity demanded of that
good increases.
• Note the inverse (negative)
relationship between the price
of a good and the quantity
demanded for a good
Demand Schedule
• Demand schedule is Table 1 : The Demand Schedule for Coca-cola
a list of the quantities
demanded at each
different price when all Price ($ per Quantity
the other influences on bottle) Demanded
buying plans (ie. other (bottles per day)
things) remain the $2.00 0
same.
$1.50 1
$1.00 2
$0.50 3
Demand Curve The Demand Schedule for Coca-cola The Demand Curve for Coca-cola

• Demand curve is a
graph of the relationship
between the quantity
demanded of a good and
its price when all other
influences on buying
plans (ie. other things)
remain the same.
Individual Demand vs. Market Demand
Figure 1 : Individual Demand vs. Market Demand
• Individual demand : the
quantity demanded for a
good by one consumer at
a specified price
• Market demand : the sum
of the demands of all
buyers in a market
• The market demand curve
is the horizontal sum of the
demand curves of all
buyers in the market.
• See Figure 1
• Assumption : the market is
made up of 2 consumers
Changes in Demand Figure 2 : Changes in Demand

• Recall : the demand curve

shows how the quantity
demanded changes when the
price of the good changes;
other things influencing
demand remaining unchanged.
• When other things (ie. other
influencers of demand)
changes  demand for a good
will change and the entire
demand curve shifts
• Decrease in demand : the
demand curve shifts to the left
• Increase in demand : the
demand curve shifts to the right
Influencers of Demand
• The main influences on buying plans
that change demand are
• Prices of related goods
• Expected future prices
• Income
• Expected future income and
credit
• Number of buyers
• Preferences Demand for
milk
Decrease in Demand
• Demand for a good may decrease if :
• Price of substitutes decreases
• A substitute is a good that can be consumed in place of another good.
• Example : Coke and Pepsi may be substitutes
• If the price of Pepsi decreases  quantity demanded for Pepsi increases and consumers may
substitute Pepsi with Coke – ie. demand for Coke decreases
• Price of complements increase
• A complement is a good that is consumed with another good.
• Example : Coke and hamburgers may be complements
• If the price of a hamburger increases  quantity demanded for hamburgers decreases; and as
consumers eat less hamburgers, they may demand less coke – ie. demand for coke decreases
• Future prices are expected to fall
• Example : if the price of an i-Pad is expected to fall next month, the demand for i-Pad
today decreases.
• Income decreases (the good is a normal good)/Income increases (the good is an
inferior good)
• A normal good is a good for which the demand increases if income increases and demand
decreases if income decreases.
• Example : demand for cars may decrease when income decreases
• ie. Consumers view cars as a normal good.
• An inferior good is a good for which the demand decreases if income increases and
demand increases if income decreases.
• Example : demand for public transportation decrease when income increases
• ie. Consumers view public transportation as an inferior good.
Decrease in Demand : continue
• Future income and/future credit is expected to fall
• When income is expected to decrease in the future, or when
credit is hard to get and the cost of borrowing is high, the
demand for some goods decreases.
• Changes in expected future income and the availability and cost of
credit has the greatest effect on the demand for big ticket items Falling Birth Rates
such as apartments and cars.
• Number of buyers decrease
• Example : due to falling birth rate[s]  demand for kindergardens
may decrease
• Decreased preferences for a good/service Home
• Preferences for a good/service change when:
• People become better informed. Financing
• New goods/services become available.
• Example : when medical studies indicate that eating burned food
can increase risk of cancer  peoples’ preferences for barbequed
food may decrease
Decreased Demand & Leftward Shift in the Demand Curve
• A decrease in the demand for a Figure 3 : A Decrease in Demand
good is illustrated as a leftward
shift in the demand curve Price ($)
• See Figure 3
• Note that at the same price level,
quantity demanded has decreased
• Causes of a decrease in demand :
• Decrease in the price of substitutes
• Increase in the price of complements
$2
• Fall in expected future prices
• Decrease in income (normal good)
Price
• Increase in income (inferior good) remained
• Fall in expected future income constant at
$2
• Decrease in credit/increase in the D1
cost of credit D2
• Decrease in the number of buyers
• Decrease in preference 0 50 100 Quantity
(bottles of Coke)
Increase in Demand
• Demand for a good may increase if :
• Price of substitutes increases
• A substitute is a good that can be consumed in place of another good.
• Example : Coke and Pepsi may be substitutes
• If the price Pepsi increase  quantity demanded for Pepsi may fall 
demand for Coke may increase
• Price of complements decrease
• A complement is a good that is consumed with another good.
• Example : Coke and hamburgers may be complements
• If the price of hamburgers decrease  people may consume more
hamburgers  demand for Coke may increase
• Future prices are expected to rise
• Example : if the price of an i-Pad is expected to rise next month, the
demand for i-Pad today decreases.
• Income increases (the good is a normal good)/Income decreases
(the good is an inferior good)
• A normal good is a good for which the demand increases if income
increases and demand decreases if income decreases.
• Example : demand for cars may increase when income increases
• ie. Consumers view cars as a normal good.
• An inferior good is a good for which the demand increases if income
decreases and demand decreases if income increases.
• Example : demand for public transportation increase when income
decreases
• ie. Consumers view public transportation as an inferior good.
Increase in Demand : continue
• Future income and/future credit is expected
to rise
• When income is expected to increase in the
future, or when credit is easy to get and the
cost of borrowing is low, the demand for some
goods increases.
• Changes in expected future income and the
availability and cost of credit has the greatest
effect on the demand for big ticket items such
as apartments and cars.
• Number of buyers increase
• Example : due the aging population in some
countries  demand for healthcare may
increase
• Increased preferences for a good/service
• Preferences for a good/service change when:
• People become better informed.
• New goods/services become available.
• Example : improved online shopping platforms
may increase confidence and preference for
online shopping and decrease preference for
in-store shopping
Increased Demand & Rightward Shift in the Demand Curve
• An increase in the demand for a Figure 4 : An Increase in Demand
good is illustrated as a rightward
shift in the demand curve Price ($)
• See Figure 3
• Note that at the same price level,
quantity demanded has increased
• Causes of an increase in demand :
• Increase in the price of substitutes
• Decrease in the price of
complements
• Rise in expected future prices $2
• Increase in income (normal good)
• Decrease in income (inferior good) Price
• Rise in expected future income remained
constant at
• Increase in credit/decrease in the $2 D2
cost of credit
• Increase in the number of buyers D1
• Increase in preference
0 50 100 Quantity
(bottles of Coke)
 The Law of Supply
Supply
• The quantity supplied is the amount
of a good, service, or resource that
people are willing and able to sell
[supply] during a specified period at a
specified price.
• The Law of Supply
• Other things remaining the same,
• If the price of a good rises, the quantity
supplied of that good increases.
• If the price of a good falls, the quantity
supplied of that good decreases.
• Note the direct (positive) relationship
between the price of the good and the quantity
supplied of the good.
Supply Schedule and Supply Curve
Supply Schedule Supply Curve
• A supply schedule is a list of
the quantities supplied at
each different price when
all other influences on
selling plans remain the
same.
• A supply curve is a graph of
the relationship between
the quantity supplied and
the price of the good when
all other influences on
selling plans remain the
same.
Individual Supply vs. Market Supply
• Individual supply : Figure 5 : Individual Supply Curve
the quantity supplied vs. Market Supply Curve
of a good by one
producer
(seller/supplier) at a
specified price
• Market supply is
the sum of the
supplies of all sellers
in a market.
 Figure 6 : Changes in Supply
Changes in Supply
• A change in supply is a change in
the quantity that suppliers plan to
sell when any influence on selling
plans other than the price of the
good changes.
• When other things (ie. other
influencers of supply) changes
 supply of a good will change and
the entire supply curve shifts
• Decrease in supply : the supply curve
shifts to the left
• Increase in supply : the supply curve
shifts to the right
Influencers of Supply
• The main influencers of supply
include :
• Prices of related goods
• Substitutes in production -
goods that are produced in
place of another good
• Complements in
production – goods that
are produced along with
the production of a good

• Prices of resources and other

inputs
• Expected future prices
• Number of sellers
• Productivity – ie. the output
per unit of input
Decrease in Supply
• Supply of a good may decrease if :
• There is an increase in the price of
substitutes in production
• Example : if the price of an i-Pad
increases  more resources will be
allocated to the production of i-Pad &
less resources may be allocated to the
production of i-Phones  supply of
i-Phones may decrease
• There is a decrease in the price of
complements in production
• Example : a decrease in the price of
gasoline will decrease the quantity
supplied of gasoline & as less gasoline
is supplied  less paraffin is supplied
• Prices of resources and other inputs
increase
• When the price of rice increases
 the cost of making rice-cakes
increases  the supply of rice-cakes
decreases
Decrease in Supply .. continue
• Increase in expected future price
• If suppliers expect price to increase in
the future  suppliers will decrease
current supply
• A decrease in the number of sellers
• As the number of sellers decreased
 supply capacity decrease and supply
decreases
• A fall in productivity
• A fall in productivity (ie. a fall in output
per unit) implies higher production
cost  lowers profit margin and
decreases incentive to supply
 supply decreases
Decreased Supply & Leftward Shift in the Supply Curve
• A decrease in the supply of a Figure 7 : A Decrease in Supply
good is illustrated as a leftward
shift in the supply curve Price ($)
• See Figure 7 S2
• Note that at the same price level, S1
quantity supplied has decreased
• Causes of a decrease in supply :
• Increase in the price of substitutes
in production
• Decrease in the price of $2
complements
• Increase in expected future prices Price
remained
• Increase in the prices of resources constant at
and other inputs $2

• Decrease in the number of sellers

• Decrease in productivity
0 50 100 Quantity
(bottles of Coke)
Increase in Supply
• Supply of a good may increase if :
• There is a decrease in the price of
substitutes in production
• Example : if the price of an i-Pad decreases
 less resources will be allocated to the
production of i-Pad & more resources may be
allocated to the production of i-Phones  supply
of i-Phones may increase
• There is an increase in the price of
complements in production
• Example : an increase in the price of gasoline will
increase the quantity supplied of gasoline & as
more gasoline is supplied  more paraffin is
supplied
• Prices of resources and other inputs
decrease
• When the price of rice decreases  the cost of
making rice-cakes decreases  the supply of
rice-cakes increases
Increase in Supply .. continue
• Decrease in expected future price
• If suppliers expect price to decrease in
the future  suppliers will increase
current supply
• An increase in the number of sellers
• As the number of sellers increased
 supply capacity increases and
supply increases
• A rise in productivity
• A rise in productivity (ie. a rise in
output per unit) implies lower
production cost  raises profit margin
and increases incentive to supply
 supply increases
Increased Supply & Rightward Shift in the Supply Curve
• An increase in the supply of a Figure 8 : An Increase in Supply
good is illustrated as a righttward
shift in the supply curve Price ($)
• See Figure 8 S1
• Note that at the same price level,
quantity supplied has decreased S2
• Causes of an increase in supply :
• Decrease in the price of substitutes
in production
• Increase in the price of $2
complements
• Decrease in expected future prices Price
remained
• Decrease in the prices of resources constant at
and other inputs $2

• Increase in the number of sellers

• Increase in productivity
0 50 100 Quantity
(bottles of Coke)
Market Equilibrium Figure 9 : Market Equilibrium

• Market equilibrium occurs when the

quantity demanded equals the
quantity supplied.
• In other words : market equilibrium
occurs where the market demand
curve intersects with the market
supply curve.
• Equilibrium price is the price at which
the quantity demanded equals the
quantity supplied.
• Equilibrium quantity is the quantity
bought and sold at the equilibrium
price.
• See Figure 9.
Price: A Market’s Automatic Regulator
• Law of market forces
• Surplus occurs when the quantity (a) Surplus & price falls (b) Shortage & price rises
supplied exceeds the quantity
demanded.
• When there is a surplus, the
price falls.
• Shortage occurs when the quantity
demanded exceeds the quantity
supplied.
• When there is a shortage, the
price rises.
Surplus = Qs - Qd Shortage = Qd - Qs
Changes in Demand & Market Equilibrium
• Suppose the market is
initially in equilibrium
• Then, demand increases
 the demand curve will
shift to the right
• At new equilibrium : ⚫ E2
⚫ E1
equilibrium price and
equilibrium quantity has
increased
Changes in Demand & Market Equilibrium
• Suppose the market is initially
in equilibrium
• Then, demand decreases
 the demand curve will shift
to the left
• At new equilibrium : ⚫ E1
equilibrium price and ⚫ E2
equilibrium quantity has
decreased
Changes in Supply & Market Equilibrium
• Suppose the market is initially in
equilibrium
• Then, supply increases  the
supply curve will shift to the
right ⚫ E1
• At new equilibrium : equilibrium ⚫ E2
price has decreased, but
equilibrium quantity has
increased
Changes in Supply & Market Equilibrium
• Suppose the market is initially
in equilibrium
• Then, supply decreases  the
supply curve will shift to the
left ⚫ E2
• At new equilibrium : ⚫ E1
equilibrium price has
increased, but equilibrium
quantity has decreased
Discussion Questions : Question 1
• Explain how each of the following
events changes the demand for or
supply of air travel. How will the
demand or the supply curve shift (ie.
leftward or rightward)?
• a. Airfares tumble, while long-
distance bus fares don’t change.
• b. The price of jet fuel rises.
• c. People expect airfares to increase
next summer.
• d. The price of train travel falls.
Discussion Points The Market for Air Travel

• Event : a. Airfares tumble, while long- Airfares

distance bus fares don’t change.
• Decrease in the price of air travel (ie.
airfare)
• Long-distance bus travel and air travel are
substitutes
• Bus fares increase  demand for air travel P1
⚫ A
increase
• Bus fares decrease  demand for air P2 ⚫ B
travel decrease
• However, the price of long-distance bus fares
remained unchanged  no shift in the
demand curve DAir Travel
• As the price of air travel decreases
 quantity demanded for air travel Q1 Q2
Quantity (Air Travel)
increases – ie. a movement down the
same demand curve
 The Market for Air Travel
Discussion Points
Airfares
• Event : b. The price of jet fuel rises. S2

• Increase in cost of input S1

(production)
• Jet fuel is an important input used to
produce air travel
• As the price of jet fuel rises P1
⚫C ⚫ A
 cost of producing air travel
increases  supply of air travel Price
decreases  the supply curve of air remained
constant
travel shifts to the left
• Note that quantity supplied has
decreased even though prices (ie air
fare) remained unchanged at P1 Q2 Q1 Quantity (Air Travel)
Discussion Points The Market for Air Travel

• Event : People expect airfares to Airfares

increase next summer.
• Increase in expected future price by
people (ie. consumers)
• As people (consumers) expect the
price of air travel to increase next
summer  choose to travel sooner
(this summer) rather than later (ie. P1 ⚫ A ⚫E
next summer)  current demand for
air travel increases  the Price
remained
demand curve for air travel shifts to constant D2
the right D1
• Note that quantity demanded has
increased even though prices (ie air
fare) remained unchanged at P1 Q1 Q2
Quantity (Air Travel)
Discussion Points The Market for Air Travel

• Event : The price of train travel falls. Airfares

• Train travel and air travel may be

substitutes in consumption
• As the price of a substitute falls
 people buy more of the substitute
(ie. increase in the quantity P1
demanded for train travel)  buy
less of air travel  demand for air Price
travel falls  the demand curve for remained
constant D1
air travel shifts to the left D2
• Note that the quantity demanded has
decreased although the prices (ie. air Q2 Q1 Quantity (Air Travel)
fare) has remained unchanged at P1
Discussion Questions : Question 2
• Use the laws of demand and supply to explain
whether the statements in Problems (a) and (b)
are true or false.
• In your explanation, distinguish between a
change in demand and a change in the quantity
demanded and between a change in supply and
a change in the quantity supplied.
• a. The United States does not allow oranges
from Brazil (the world’s largest producer of
oranges) to enter the United States. If Brazilian
oranges were sold in the United States, oranges
and orange juice would be cheaper.
• b. If the price of frozen yogurt falls, the quantity
of ice cream consumed will decrease and the
price of ice cream will rise.
 The United States does not allow oranges from Brazil (the world’s largest producer of
oranges) to enter the United States. If Brazilian oranges were sold in the United

Discussion Points States, oranges and orange juice would be cheaper.

The Market for Orange

• True
• Reason :
Price
• Allowing the importation of Brazilian oranges into the
US would increase supply of oranges (ie. increase in
the number of suppliers)  the supply of oranges will S1
increase and the supply curve will shift to the left
 equilibrium price of oranges will decreases, S2
whereas equilibrium quantity of oranges will increase
• Note that as the price of oranges decrease
 the quantity demanded for orange increases (ie. from Q1
to Q2)  ie. there is a movement down along down the
demand curve (D1)
• As oranges is the main ingredient to make orange
P1 ⚫ E1
juice  the decrease in the price of oranges would
mean that the cost of production of orange juice has
decreased
P2
⚫ E2
• This would increase the supply of orange juice so that
the supply curve of orange juice would also shift to D1
the right  thus, equilibrium price of orange juice will
decreases, whereas equilibrium quantity of orange
juice will increase
• Note that as the price of orange juice decrease Q1 Q2
 the quantity demanded for orange juice increases Quantity
 If the price of frozen yogurt falls, the quantity of ice cream consumed will decrease
and the price of ice cream will rise.
Discussion Points The Market for Ice-cream
• False
• Reason :
Price
• Frozen yoghurt and ice-cream are
substitutes in consumption. S1
• When the price of frozen yoghurt falls
 (some) people may consume more
frozen yoghurt (ie. quantity demanded for
frozen yoghurt increases)
• In other words, (some) consumers substitute
P1 ⚫ E1
ice-cream with frozen yoghurt.
• Thus, they may consume less ice-cream P2
 demand for ice-cream decreases and the
demand curve for ice-cream will shift to the
left  equilibrium price will fall and D1
equilibrium quantity will fall.
D2
• Note that the quantity supplied of ice-
cream will fall as the price of ice-cream has Q1
fallen – ie. a movement down along the Q2
Quantity
supply curve S1
Discussion Questions : Question 3
• Table 1 shows the demand and Price Quantity Quantity
supply schedules for running
(dollars demanded supplied
shoes.
per pair)
• (a) What is the market (pairs per day)
equilibrium? 60 1,000 400
• (b) If the price is $70 a pair, 70 900 500
describe the situation in the 80 800 600
market. Explain how market
equilibrium is restored. 90 700 700
• (c) If a rise in income increases the 100 600 800
demand for running shoes by 100 110 500 900
pairs a day at each price, explain
how the market adjusts to its new
equilibrium.
 Price Quantity Quantity
Discussion Points : Q3(a) & (b) (dollars
per pair)
demanded supplied

(pairs per day)

• At market equilibrium : Quantity Demanded 60 1,000 400
= Quantity Supplied 70 900 500
• Hence market equilibrium occurs where 80 800 600
equilibrium quantity = 700 pairs of running 90 700 700
shoes 100 600 800
110 500 900
• Market equilibrium price = $90 per pair
• At the price of $70 per pair : Quantity Price
Demanded (900) > Quantity supplied (500) S1
 a shortage of 400 pairs of running shoes
arises (ie. 900 – 500 = 400)
• Hence, the price rises
• As price rises, the quantity demanded $90 ⚫E
decreases, whereas the quantity supplied $70
increases, and the shortage decreases. Shortage = D1
• The price rises until the shortage 900 – 500 =
400
disappears.
500 700 900 Quantity
 (c) If a rise in income increases the demand for running
Discussion Points : Q3(c) shoes by 100 pairs a day at each price, explain how the
market adjusts to its new equilibrium.
• The table shows the new demand
schedule after the increase in income
has increased the quantity demanded Price Quantity Quantity
by 100 pairs of shoes at each price. (dollars demanded supplied
• At the original equilibrium price of $90 per pair)
a pair, there is a shortage and the price (pairs per day)
rises.
60 1,000 + 100 = 400
• As the price rises, the quantity
demanded decreases, the quantity 1,100
supplied increases, and the shortage 70 900 + 100 = 500
decreases. 1,000
• The price rises until the shortage 80 800 + 100 = 600
disappears. 900
• Note : The price rises to $95 a pair and 90 700 + 100 = 700
the quantity increases to 750 pairs of
running shoes a day. 800
• See slide 45 100 600 + 100 = 800
• You may use a graph paper to draw the 700
demand and supply curves at initial
equilibrium and after the increase in 110 500 + 100 = 600 900
income.
 Note : A shortage of 100 pairs of running shoes
arises at the initial equilibrium price of $90 per
Discussion Points : Q3(c) pair  price rises and eliminate the shortage

Price New Quantity Quantity Price

S1
(dollars demanded supplied
per pair)
(pairs per day) $100
60 1,100 400 $95
70 1,000 500 $90
80 900 600
90 800 700 D2
100 700 800 D1
110 600 900
700 800 Quantity
750
Discussion Questions : Question 4
• Steel output set for historic drop
• Steel producers expect to cut output by
10 percent in response to cancelled
orders from construction companies
and car and appliance producers.
• Source: Financial Times, December 28,
2008
• Draw a graph to explain how the
cancellation of orders change the
market for steel.
• What happens to the equilibrium price
of steel?
 Steel producers expect to cut output by 10 percent
Discussion Points in response to cancelled orders from construction
companies and car and appliance producers.

• Construction companies, car and The Market for Steel

appliance producers cancelled their
orders for steel  this is a decrease in
demand for steel so that the demand Price
curve for steel shifts leftward. S1
• The cancellation of orders does not
change the supply of steel, so the supply
curve of steel does not shift.
• As the demand curve shifts leftward, P1
whereas the supply of steel remained
unchanged, there is a movement down
along the supply curve of steel and a P2
decrease in the quantity of steel supplied.
• The equilibrium price of steel falls; the
equilibrium quantity of steel also falls D1
• ie. steel producers were expecting a cut in
output (ie. quantity supplied) by 10% D2
Q2 Q1 Quantity
(Steel)
Multiple Choice Questions
• Question 1

• Which of the following statements is true about a competitive market? A

competitive market
• A.must have a physical location.
• B.includes markets for goods and services but not for inputs.
• C.has so many buyers and sellers that no one can influence the price.
• D.has one seller competing to sell his or her product.
Multiple Choice Questions
• Question 2
• Which of the following is true regarding demand?

• i. Demand is the relationship between quantity demanded and the price of a good
when all other influences on buying plans remain the same.
• ii. Demand refers to one quantity at one time.
• iii."Demand" and "quantity demanded" are the same thing.
• A. i only
• B. ii only
• C. both i and ii
• D. both ii and iii
Multiple Choice Questions
• Question 3
• Which of the following factors does not cause the demand curve for
oranges to shift?
• A. A change in household incomes
• B. A change in the price of oranges
• C. An increase in the number of buyers of oranges
• D. A change in the price of apples (a substitute for oranges)
Multiple Choice Questions
• Question 4
• Suppose that Peter and John are the only two demanders of lemonade.
Each month, Peter buys six glasses of lemonade when the price is $1.00 per
glass, and he buys four glasses when the price is $1.50 per glass. Each
month, John buys four glasses of lemonade when the price is $1.00 per
glass, and he buys two glasses when the price is $1.50 per glass. Which of
the following points is on the market demand curve?

• A. (quantity demanded = 4, price = $2.50)

• B. (quantity demanded = 16, price = $2.50)
• C. (quantity demanded = 3, price = $1.50)
• D. (quantity demanded = 10, price = $1.00)
Multiple Choice Questions
• Question 5

• There are five hundred buyers in the market for cheese. If we know each
individual's demand curves, to find the market demand, we must
• A. add the prices that each buyer will pay at every quantity.
• B. add the quantities that each buyer will purchase at every price.
• C. multiply the price times quantity for each buyer and then add the
resulting products together.
• D. average the price each buyer is willing to pay for each given quantity.
Multiple Choice Questions
• Question 6
• Which of the following events illustrates the law of supply: Other things
remaining the same, a rise in the price of a good will .
• A. increase the quantity supplied of that good
• B. decrease the supply of a substitute in production of that good
• C. increase the supply for the good
• D. decrease the supply of complements in production of the good.
Multiple Choice Questions
• Question 7
• When the financial crisis wiped out household savings and caused high
unemployment in the United States, the equilibrium price of
automobiles and the equilibrium quantity of automobiles
.
• A. rose; increased
• B. rose; decreased
• C. fell; increased
• D. fell; decreased
Multiple Choice Questions
• Question 8

• A decline in the supply of oil with no change in the demand for

oil will create a of oil at today’s price, but gradually
the price will .
• A. surplus; fall
• B. shortage; fall
• C. surplus; rise
• D. shortage; rise
Multiple Choice Questions Figure 1

• Question 9
• Refer to Figure 1.
• Which of the four graphs
represents the market for
orange after a major natural
disaster hits the orange-
growing parts of California?
• A. A
• B. B
• C. C
• D. D
Multiple Choice Questions Figure 1

• Question 10
• Refer to Figure 1.
• Which of the four graphs
represents the market for
raincoats as we progress
from the typhoon season to
the non-typhoon season?
• A. A
• B. B
• C. C
• D. D