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?
A) D decreases, S no change, P and Q decrease
B) S decreases, D no change, P increases, Q decreases
C) D and S decrease, P and Q increase
D) D no change, S decreases, P increases, Q increases
2) In 2004, hurricanes destroyed a large portion of Florida’s orange and grapefruit crops. In the
market for citrus fruit,
A) the supply curve shifted to the right resulting in an increase in the equilibrium price.
B) the supply curve shifted to the left resulting in an increase in the equilibrium price.
C) the demand curve shifted to the right resulting in an increase in the equilibrium price.
D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
3) Olive oil producers want to sell more olive oil at a higher price. Which of the following events
would have this effect?
A) an increase in the price of olive oil presses
B) a decrease in the cost of transporting olive oil to markets
C) an increase in the price of land used to plant olives
D) research finds that consumption of olive oil reduces the risk of heart disease
4) Which of the following would cause both the equilibrium price and equilibrium quantity of
cotton (assume that cotton is a normal good) to increase?
A) an increase in consumer income
B) a drought that sharply reduces cotton output
C) a decrease in consumer income
D) unusually good weather that results in a bumper crop of cotton
5) 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
B) an increase in the price of flour
C) an increase in the price of rye bread, a substitute for white bread
D) an increase in the price of butter, a complement for white bread
6) Assume that the hourly price for the services of tarot card readers has risen and sales of these
services have also risen. One can conclude that
A) the law of demand has been violated.
B) the number of tarot card readers has increased.
C) the demand for tarot card readers has increased.
D) tarot card readers are deliberately charging high prices because they provide services for
superstitious clients.
7) 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?
A) The supply curve for Merlot has shifted to the right while the demand curve for Merlot has
shifted to the left.
B) The demand curve for Merlot has shifted to the right more than the supply curve has shifted to
the right.
C) The demand curve and the supply curve for Merlot have both shifted to the left.
D) The supply curve for Merlot has shifted to the right more than the demand curve has shifted
to the right.
8) In recent years the cost of producing organic produce in the U.S. has decreased largely due
technological advancement. At the same time, more and more Americans prefer organic produce
over conventional produce. Which of the following best explains the effect of these events in the
organic produce market?
A) The supply curve has shifted to the left and the demand curve has shifted to the right. As a
result there has been an increase in the equilibrium quantity and an uncertain effect on the
equilibrium price.
B) Both the supply and demand curves have shifted to the right. As a result, there has been an
increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
C) Both the supply and demand curves have shifted to the right. As a result, there has been an
increase in both the equilibrium price and the equilibrium quantity.
D) The supply curve has shifted to the left and the demand curve has shifted to the right. As a
result, there has been an increase in the equilibrium price and an uncertain effect on the
equilibrium quantity.
9) An article in the Wall Street Journal in early 2001 noted two developments in the market for
laser eye surgery. The first development concerned side effects from the surgery, including
blurred vision. The second development was that the companies renting eye-surgery machinery
to doctors had reduced their charges. In the market for laser eye surgeries, these two
developments
A) decreased demand and decreased supply, resulting in a decrease in the equilibrium quantity
and an increase in the equilibrium price of laser eye surgeries.
B) decreased demand and increased supply resulting in an increase in both the equilibrium
quantity and the equilibrium price of laser eye surgeries.
C) decreased demand and increased supply, resulting in a decrease in the equilibrium price and
an uncertain effect on the equilibrium quantity of laser eye surgeries.
D) decreased demand and increased supply, resulting in a decrease in both the equilibrium price
and the equilibrium quantity of laser eye surgeries.
10) An increase in the demand for lobster due to changes in consumer tastes, accompanied by a
decrease in the supply of lobster as a result bad weather reducing the number of fishermen
trapping lobster, will result in
A) a decrease in the equilibrium quantity of lobster and no change in the equilibrium price.
B) an increase in the equilibrium price of lobster and no change in the equilibrium quantity.
C) an increase in the equilibrium price of lobster; the equilibrium quantity may increase or
decrease.
D) a decrease in the equilibrium quantity of lobster; the equilibrium price may increase or
decrease.
Figure 3-7
11) Refer to Figure 3-7. 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?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
12) Refer to Figure 3-7. 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?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
13) Refer to Figure 3-7. 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)
B) Panel (b)
C) Panel (c)
D) Panel (d)
14) Refer to Figure 3-7. 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?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
15) Refer to Figure 3-7. 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?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
16) Refer to Figure 3-7. 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?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
17) Refer to Figure 3-7. 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?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
18) Positive technological change in the production of LCD televisions caused the price of LCD
televisions to fall. Holding everything else constant, how would this affect the market for Blu-
ray players (a complement to LCD televisions)?
A) The supply of blu-ray players would increase and the equilibrium price of blu-ray players
would decrease.
B) The demand for blu-ray players would increase and the equilibrium price of blu-ray players
would increase.
C) The demand for blu-ray players would decrease because consumers could afford to buy fewer
LCD televisions and blu-ray players.
D) The demand for blu-ray players would increase and the equilibrium price of blu-ray players
would decrease.
19) Assume that both the demand curve and the supply curve for MP3 players shift to the right
but the demand curve shifts more than the supply curve. As a result
A) both the equilibrium price and quantity of MP3 players will increase.
B) the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or
decrease.
C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will
increase.
D) the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or
decrease.
20) “The price of compact fluorescent light bulbs fell because of improvements in production
technology. As a result, the demand for incandescent light bulbs decreased. This caused the
price of incandescent light bulbs to fall; as the price of incandescent light bulbs fell the demand
for incandescent light bulbs decreased even further.” Evaluate this statement.
A) The statement is false. A decrease in the price of compact fluorescent light bulbs would
decrease the demand for incandescent light bulbs, but a decrease in the price of incandescent
light bulbs would not cause the demand for incandescent light bulbs to decrease.
B) The statement is false because the demand for incandescent light bulbs would increase as the
price of compact fluorescent light bulbs fell.
C) The statement is false because compact fluorescent light bulbs producers would not reduce
their prices as a result of improvements in technology; doing so would reduce their profits.
D) The statement is false because it confuses the law of demand with the law of supply.
Figure 3-8
21) Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in
the market for apples at the intersection of D1 and S1 (point A). If the price of oranges, a
substitute for apples, decreases and the wages of apple workers increase, how will the
equilibrium point change?
A) The equilibrium point will move from A to E.
B) The equilibrium point will move from A to B.
C) The equilibrium point will move from A to C.
D) The equilibrium will first move from A to B, then return to A.
22) Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in
the market for apples at the intersection of D1 and S1 (point A). If there is a shortage of apples
how will the equilibrium point change?
A) The equilibrium point will move from A to B.
B) The equilibrium point will move from A to C.
C) There will be no change in the equilibrium point.
D) The equilibrium point will move from A to E.
23) Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in
the market for apples at the intersection of D2 and S2 (point E). Which of the following changes
would cause the equilibrium to change to point A?
A) A positive change in the technology used to produce apples and decrease in the price of
oranges, a substitute for apples.
B) An increase in the wages of apple workers and a decrease in the price of oranges, a substitute
for apples.
C) An increase in the number of apple producers and a decrease in the number of apple trees as a
result of disease.
D) A decrease in the wages of apple workers and an increase in the price of oranges, a substitute
for apples.
24) Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in
the market for apples at the intersection of D1 and S1 (point A). If there is an increase in the
wages of apple workers and an increase in the price of oranges, a substitute for apples, the
equilibrium could move to which point?
A) none of the points shown
B) B
C) C
D) E
25) Which of the following statements is true?
A) An increase in demand causes a change in equilibrium price; the change in price does not
cause a further change in demand or supply.
B) A decrease in supply causes equilibrium price to rise; the increase in price then results in a
decrease in demand.
C) If both demand and supply increase there must be an increase in equilibrium price;
equilibrium quantity may either increase or decrease.
D) If demand decreases and supply increases one cannot determine if equilibrium price will
increase or decrease without knowing which change is greater.
26) A decrease in the equilibrium price for a product will result
A) when the quantity demanded for the product exceeds the quantity supplied.
B) when there is a decrease in supply and a decrease in demand for the product.
C) when there is an increase in supply and a decrease in demand for the product.
D) when there is a decrease in demand and a decrease in the number of firms producing the
product.
27) The following appeared in a Florida newspaper a week after a hurricane hit the state.
“Floridians are relieved that the storm produced no fatalities but homeowners face weeks, if not
months, of rebuilding. Matters are made worse by the soaring prices of plywood and other
building materials that always follow in a hurricane’s path. Complaints of profiteering and price
gouging have not deterred firms from raising their prices by over 100 percent.” Which of the
following offers the best explanation for the price increases referred to in the article?
A) The hurricane reduced the number of suppliers of building materials.
B) The hurricane created an artificial shortage of building materials.
C) The hurricane caused an increase in the demand for building materials.
D) There was a reduction in supply as firms shipped plywood and other materials to locations not
affected by the storm.
28) Which of the following would cause a decrease in the equilibrium price and an increase in
the equilibrium quantity of salmon?
A) a decrease in demand and an increase in supply
B) an increase in supply
C) an increase in supply and an increase in demand greater than the increase in supply
D) a decrease in demand and a decrease in supply
29) Select the phrase that correctly completes the following statement. “A positive change in
technology caused an increase in the supply of flat-screen televisions. As a result ________.”
A) the price of flat-screen televisions decreased and the demand for flat-screen televisions
increased
B) the equilibrium quantity of flat-screen televisions decreased
C) the price of flat-screen televisions decreased and the quantity demanded of flat-screen
televisions increased
D) the price of flat-screen televisions decreased. The lower price caused the supply of flat-
screen televisions to decrease
30) What would happen in the market for laser eye surgery if insurance companies started to
cover a portion of the price of voluntary procedures?
A) Demand will increase, but this will not shift the supply curve.
B) Supply will increase, but this will not shift the demand curve.
C) Demand and supply will both increase.
D) Demand will increase and supply will decrease.
31) If more insurance companies decide to cover part of the price of voluntary laser eye surgery
and more doctors decide to enter the field of laser eye surgery, what will happen in the market
for laser eye surgery as a result of these two factors?
A) Demand will increase, but these two factors will not shift the supply curve.
B) Supply will increase, but these two factors will not shift the demand curve.
C) Demand and supply will both increase.
D) Demand will increase and supply will decrease.
32) Blu-ray players were introduced to the market in 2006, and new technology has allowed for
the cost of manufacturing the players to decline significantly since the initial introduction. How
did this change in technology affect the market for Blu-ray players?
A) The new technology caused an increase in the supply of Blu-ray players and a decrease in
price of Blu-ray players.
B) The new technology caused an increase in the supply of Blu-ray players and an increase in
price of Blu-ray players.
C) The new technology caused an decrease in the demand for Blu-ray players.
D) The new technology caused an increase in the quantity of Blu-ray players supplied.
33) “Because apples and oranges are substitutes, an increase in the price of oranges will cause
the demand for apples to increase. This initial shift in demand for apples results in a higher price
for apples; this higher price will cause the demand curve for apples to shift to the right.” Which
of the following correctly comments on this statement?
A) The statement will be true if consumer tastes for apples and oranges do not change.
B) The statement is false because a change in the price of apples would not change the demand
for apples.
C) The statement is false because oranges are inferior goods; apples are normal goods.
D) The statement is false because one cannot assume that apples and oranges are substitutes for
all consumers.
34) The demand for lobster is higher in the summer than in the spring. If the price of lobster is
lower in summer than in spring then
A) the supply of lobster is lower in spring than in summer.
B) consumers’ tastes for lobster are greater in spring than in summer.
C) there is a surplus of lobster in summer and a shortage of lobster in spring.
D) there are more substitutes for lobster in summer than there are in spring.
35) All else equal, a shortage of display screens used in the manufacture of tablet computers
would
A) shift the supply curve for tablet computers to the right.
B) shift the supply curve for tablet computers to the left.
C) shift the demand curve for tablet computers to the right.
D) shift the demand curve for tablet computers to the left.
36) All else equal, a shortage of display screens used in the manufacture of tablet computers
would cause the equilibrium price of the tablet computers to ________ and the equilibrium
quantity of the tablet computers to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
37) If the demand for a product increases and the supply of the same product increases, the
equilibrium price will increase.
38) As the number of firms in a market decreases, the supply curve will shift to the left and the
equilibrium price will rise.
39) If the number of firms producing mouthwash increases and consumer preference for
mouthwash increases, the equilibrium price of mouthwash will definitely increase.
40) If the demand curve for a product shifts to the left and the supply curve for the product shifts
to the left, the equilibrium quantity will decrease.
41) Discuss the correct and incorrect economic analysis in the following statements.
“If good weather in Hawaii creates a bumper crop of pineapples, the supply of pineapples will
increase. This will result in a price decrease, which will then cause the supply of pineapples to
decrease.”
42) Explain how it would be possible for the equilibrium price and equilibrium quantity to both
increase in the market for motorcycles if consumer preference for motorcycles increases and the
number of motorcycle manufacturers decreases.
43) Discuss the correct and incorrect economic analysis in the following statements.
“The United Auto Workers Union has successfully negotiated a 9 percent increase in wages for
its workers. This increase in the wage rate causes an increase in demand for automobiles, since
many consumers now have greater incomes, and also a decrease in the supply of automobiles
because the cost of production has increased. These effects cancel each other out resulting in no
change in equilibrium price and quantity in the automobile market.”
44) In each of the following situations, list what will happen to the equilibrium price and the
equilibrium quantity for a particular product, which is a normal good.
a. The population increases and the price of inputs increase
b. The price of a complement increases and technology advances
c. The number of firms in the market increases and income increases
d. Price is expected to increase in the future
e. Consumer preference increases and the price of a substitute in production decreases