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 solar panels if the government offers tax breaks to encourage manufacturers to
produce more solar panels?
A) D increases, S no change, P and Q increase
B) S increases, D no change, P decreases, Q increases
C) D and S increase, P and Q decrease
D) D no change, S increases, P decreases, Q decreases
2) Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf
coast states. In the market for gasoline,
A) the supply curve shifted to the left resulting in an increase in the equilibrium price.
B) the supply curve shifted to the right resulting in an increase in the equilibrium price.
C) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
D) the demand curve shifted to the right resulting in an increase in the equilibrium price.
3) Electric car enthusiasts want to buy more electric cars at a lower price. All of the following
events would have this effect except
A) technological advancement in the production of electric car batteries.
B) an increase in the number of manufacturers of electric cars.
C) a decrease in the price of lithium, which is used in the electric car batteries.
D) an increase in the price of gasoline.
4) Which of the following would cause both the equilibrium price and equilibrium quantity of
barley (assume that barley is an inferior good) to increase?
A) an increase in consumer income
B) a drought that sharply reduces barley output
C) a decrease in consumer income
D) unusually good weather that results in a bumper crop of barley
5) Which of the following would cause the equilibrium price of ketchup to increase and the
equilibrium quantity of ketchup to decrease?
A) a decrease in the price of tomatoes
B) an increase in the price of tomatoes
C) an increase in the price of mustard, a substitute for ketchup
D) an increase in the price of french fries, a complement for ketchup
6) Assume that the hourly price for the services of personal trainers 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 personal trainers has increased.
C) the demand for personal trainers has increased.
D) personal trainers are deliberately charging high prices because they provide services for
wealthy clients.
7) Prices of commercial airline tickets (assume that this is a normal good) have fallen in recent
months. Over this same period, the price of jet fuel has risen and consumer incomes have fallen.
Which of the following best explains the falling prices of airline tickets?
A) The supply curve for airline tickets has shifted to the left while the demand curve for airline
tickets has shifted to the left.
B) The demand curve for airline tickets has shifted to the left more than the supply curve has
shifted to the left.
C) The demand curve and the supply curve for airline tickets have both shifted to the right.
D) The supply curve for airline tickets has shifted to the left more than the demand curve has
shifted to the left.
8) In recent years the cost of producing wines in the U.S. has increased largely due to rising rents
for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the
following best explains the effect of these events in the wine 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 price and an uncertain effect on the equilibrium quantity.
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) Studies have shown that drinking one glass of red wine per day may help prevent heart
disease. Assume this is true, and a fungal disease destroys a large portion of the grape harvest of
California vineyards. In the market for red wine, these two developments would
A) increase demand and increase supply, resulting in an increase in the equilibrium quantity and
a decrease in the equilibrium price of red wine.
B) increase demand and decrease supply resulting in a decrease in both the equilibrium quantity
and the equilibrium price of red wine.
C) increase demand and decrease supply, resulting in an increase in the equilibrium price and an
uncertain effect on the equilibrium quantity of red wine.
D) increase demand and decrease supply, resulting in an increase in both the equilibrium price
and the equilibrium quantity of red wine.
10) A decrease in the demand for eggs due to changes in consumer tastes, accompanied by a
decrease in the supply of eggs as a result of an outbreak of Avian flu, will result in
A) a decrease in the equilibrium quantity of eggs and no change in the equilibrium price.
B) a decrease in the equilibrium price of eggs and no change in the equilibrium quantity.
C) a decrease in the equilibrium price of egg; the equilibrium quantity may increase or decrease.
D) a decrease in the equilibrium quantity of eggs; 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 blu-ray discs. Which panel best describes what happens in this market if there is a
substantial increase in the price of blu-ray players?
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 laptop computers. Which panel best describes what happens in this market when the
price of computer hard drives falls?
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 tuna. Which panel best describes what happens in this market when there is a
decrease in the productivity of commercial fishermen?
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 frozen yogurt. Which panel describes what happens in the market for frozen yogurt
when the price of ice cream, a substitute product, increases?
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 mustard and that bratwurst and mustard are complements. What panel describes what
happens in this market when the price of bratwurst falls?
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 coffee. What happens in this market if buyers expect the price of coffee to rise?
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 ramen noodles, an inferior good. Which panel describes what happens in this market
as a result of an increase in income?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
18) During the 1990s positive technological change in the production of chicken caused the price
of chicken to fall. Holding everything else constant, how would this affect the market for pork (a
substitute for chicken)?
A) The supply of pork would increase and the equilibrium price of pork would decrease.
B) The demand for pork would decrease and the equilibrium price of pork would decrease.
C) The demand for pork would increase because consumers could afford to buy more chicken
and pork.
D) The demand for pork would decrease and the equilibrium price of pork would increase.
19) Assume that both the demand curve and the supply curve for DVD players shift to the left
but the demand curve shifts more than the supply curve. As a result
A) both the equilibrium price and quantity of DVD players will decrease.
B) the equilibrium price of DVD players will decrease; the equilibrium quantity may increase or
decrease.
C) the equilibrium price of DVD players may increase or decrease; the equilibrium quantity will
decrease.
D) the equilibrium price of DVD players will increase; the equilibrium quantity may increase or
decrease.
20) “The price of digital cameras fell because of improvements in production technology. As a
result, the demand for non-digital cameras decreased. This caused the price of non-digital
cameras to fall; as the price of non-digital cameras fell the demand for non-digital cameras
decreased even further.” Evaluate this statement.
A) The statement is false because the demand for non-digital cameras would increase as the price
of digital cameras fell.
B) The statement is false. A decrease in the price of digital cameras would decrease the demand
for non-digital cameras, but a decrease in the price of non-digital cameras would not cause the
demand for non-digital cameras to decrease.
C) The statement is false because it confuses the law of demand with the law of supply.
D) The statement is false because digital camera producers would not reduce their prices as a
result of improvements in technology; doing so would reduce their profits.
Figure 3-8
21) Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in
the market for motorcycles at the intersection of D1 and S1 (point A). If the price of motorcycle
engines increases, and the wages of motorcycle 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 motorcycles at the intersection of D1 and S1 (point A). If there is a surplus of
motorcycles 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 motorcycles at the intersection of D2 and S1 (point C). Which of the following
changes would cause the equilibrium to change to point B?
A) A positive change in the technology used to produce motorcycles and decrease in the price of
motorcycle insurance, a complement to motorcycles.
B) An increase in the wages of motorcycle workers and a decrease in the price of motorcycle
insurance, a complement to motorcycles.
C) An increase in the number of motorcycle producers and an increase in the number of
consumers who prefer riding motorcycles.
D) An increase in the wages of motorcycle workers and an increase in the price of motorcycle
insurance, a complement to motorcycles.
24) Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in
the market for motorcycles at the intersection of D1 and S1 (point A). If there is an increase in
the wages of motorcycle workers and an increase in the price of motorcycle insurance, a
complement to motorcycles, the equilibrium could move to which point?
A) A
B) B
C) C
D) E
25) Which of the following statements is true?
A) An increase in demand causes an increase in equilibrium price; the increase in price causes
supply to increase.
B) A decrease in supply causes equilibrium price to rise; the increase in price then results in a
decrease in quantity demanded.
C) If both demand and supply decrease, there must be a decrease in equilibrium price;
equilibrium quantity may either increase or decrease.
D) If demand increases and supply decreases one cannot determine if equilibrium price will
increase or decrease without knowing which change is greater.
26) An increase 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 an increase in demand for the product.
C) when there is a decrease in supply and a decrease in demand for the product.
D) when there is an increase in demand and an increase in the number of firms producing the
product.
27) When Toyota introduced its 2010 Prius, it announced that the average retail price of the 2010
model would be lower than the average retail price was for the equivalent 2009 model. Which of
the following would explain the price differential?
A) The demand for the Prius had increased, and the supply of the Prius remained unchanged.
B) The supply of the Prius had decreased, and the demand for the Prius remained unchanged.
C) The demand for the Prius had decreased, and the supply of the Prius had increased.
D) The demand for the Prius had increased, and the supply of the Prius had decreased.
28) Which of the following would cause an increase in the equilibrium price and decrease in the
equilibrium quantity of watermelon?
A) a decrease in demand and an increase in supply
B) a decrease in supply
C) an increase in demand and an increase in supply greater than the increase in demand
D) an increase in demand and an increase in supply
29) Select the phrase that correctly completes the following statement. “A decrease in the
number of manufacturers caused a decrease in the supply of sailboats. As a result. ________.”
A) the price of sailboats increased and the demand for sailboats decreased.
B) the equilibrium quantity of sailboats increased.
C) the price of sailboats increased and the quantity demanded of sailboats decreased.
D) the price of sailboats increased. The higher price caused the supply of sailboats to increase.
30) Digital video recorders (DVRs) were introduced to the market in 1999, and new technology
has allowed for the cost of manufacturing the recorders to decline significantly since the initial
introduction. How did this change in technology affect the market for DVRs?
A) The new technology caused an increase in the supply of DVRs and a decrease in price of
DVRs.
B) The new technology caused an increase in the supply of DVRs and an increase in price of
DVRs.
C) The new technology caused an decrease in the demand for DVRs.
D) The new technology caused an increase in the quantity of DVRs supplied.
31) The price of lobster is typically lower in the summer than in the spring. Which of the
following explanations for this difference is given in the textbook?
A) Hot, humid weather usually reduces the demand for lobster.
B) People who usually eat lobster in other seasons substitute less expensive fish when they go on
vacation; this drives down the demand for lobster.
C) The supply of lobster is greater in the summer than in the spring.
D) Import restrictions are eased in the summer; as more lobsters are imported the price of lobster
falls.
32) “Because Coke and Pepsi are substitutes, a decrease in the price of Pepsi will cause the
demand for Coke to decrease. This initial shift in demand for Coke results in a lower price for
Coke; this lower price will cause the demand curve for Coke to shift to the left.” Which of the
following correctly comments on this statement?
A) The statement will be true if consumer tastes for Coke and Pepsi do not change.
B) The statement is false because a change in the price of Coke would not change the demand for
Coke.
C) The statement is false because Pepsi is an inferior good; Coke is a normal good.
D) The statement is false because one cannot assume that Coke and Pepsi are substitutes for all
consumers.
33) All else equal, a ________ of display screens used in the manufacture of tablet computers
would shift the ________ curve for tablet computers to the left.
A) shortage; demand
B) shortage; supply
C) surplus; demand
D) surplus; supply
34) All else equal, a shortage of display screens used in the manufacture of tablet computers
would cause the
A) equilibrium quantity of the tablet computers to increase and the equilibrium price of the tablet
computers to decrease.
B) equilibrium price of the tablet computers to increase and the equilibrium quantity of the tablet
computers to decrease.
C) equilibrium price and quantity of the tablet computers to increase.
D) equilibrium price and quantity of the tablet computers to decrease.
35) If the demand for a product increases and the supply of the same product decreases, the
equilibrium price will increase.
36) As the number of firms in a market increases, the supply curve will shift to the left and the
equilibrium price will rise.
37) If the population increases and input prices increase, the equilibrium price of a product will
definitely increase.
38) If the demand for a product decreases and the supply of the product does not change,
equilibrium price and equilibrium quantity will both increase.
39) Discuss the correct and incorrect economic analysis in the following statements.
“If a disease kills a large number of turkeys, the supply of turkeys will decrease. This will result
in a price increase, which will then cause the supply of turkeys to increase.”
40) If pilots and flight attendants agree to wage and benefit reductions in the wake of the
financial difficulties in the airline industry, what impact would this have on the supply and
demand in the market for airline service, assuming no other changes take place in this market?
41) Shrimp is an increasingly popular part of the American diet. Louisiana shrimpers who
represent the bulk of the U.S. industry were almost all put out of business by Hurricane Katrina.
How did this affect the equilibrium price and quantity of shrimp?
42) In each of the following situations, list what will happen to the equilibrium price and the
equilibrium quantity for a particular product, which is an inferior good.
a. The population decreases and productivity increases
b. The income increases and the price of inputs increase
c. The number of firms in the market decreases and income decreases
d. Consumer preference decreases and the price of a complement increases
e. The price of a substitute in consumption increases and the price of a substitute in production
increases
43) According to the Australian Wool Innovation, severe drought conditions in Australia
contributed to the lowest level of wool production in 50 years. This record low production has
driven up prices sharply in Australian wool markets. Meanwhile, the price of raw cotton
increased significantly for the first time in many years.
a. Illustrate this observation with one demand and supply graph for the market for Australian
wool and another demand and supply graph for raw cotton.
b. Make sure that your graphs clearly show (1) the initial equilibrium before the decrease in the
supply of Australian wool and (2) the final equilibrium.
c. Use arrows to indicate any shifts in the demand and supply curves for each market.
d. Label your graphs fully and write an explanation of your work.