Answers to Additional Problems and Applications
11. What features of the world market for crude oil make it a competitive market?
The world oil market is a competitive market because there are a large number of
12. The money price of a textbook is $90 and the money price of the Wii game
Super Mario Galaxy is $45.
a. What is the opportunity cost of a textbook in terms of the Wii game?
A textbook costs $90 and a Wii game costs $45. Purchasing 1 textbook forces the
b. What is the relative price of the Wii game in terms of textbooks?
13. The price of gasoline has increased during the past year.
a. Explain why the law of demand applies to gasoline just as it does to all other
goods and services.
When the price of gasoline rises, people decrease the quantity of gasoline they
b. Explain how the substitution e1ect inuences gasoline purchases and
provide some examples of substitutions that people might make when the
price of gasoline rises and other things remain the same.
When the price of gasoline rises, people substitute other goods and services for
c. Explain how the income e1ect inuences gasoline purchases and provide
some examples of the income e1ects that might occur when the price of
gasoline rises and other things remain the same.
When the price of gasoline rises, people’s real incomes fall. People respond by
decreasing their demand for normal goods, such as gasoline. In the gasoline
14. Think about the demand for the three game consoles: Xbox One, PlayStation
4, and Wii U. Explain the e1ect of the following events on the demand for
Xbox One games and the quantity of Xbox One games demanded, other
things remaining the same. The events are:
a. The price of an Xbox One falls.
An Xbox One and an Xbox One game are complements. When the price of an Xbox
One falls, consumers respond by increasing the quantity of Xbox Ones demanded
b. The prices of a PlayStation 4 and a Wii U fall.
A PlayStation 4 and a Wii U are substitutes for an Xbox One. When these game
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D E M A N D A N D S U P P LY 3 7
c. The number of people writing and producing Xbox One games increases.
The increase in the number of people writing Xbox One games increases the
supply of Xbox One games. The demand for Xbox One games does not change but
d. Consumers’ incomes increase.
e. Programmers who write code for Xbox One games become more costly to
hire.
The increase in the cost of programmers decreases the supply of Xbox One games.
When the supply of a good or service decreases, the price of that good or service
f. The expected future price of an Xbox One game falls.
g. A new game console that is a close substitute for Xbox One comes onto the
market.
The new game console decreases the demand for Xbox One consoles. As a result,
15. Classify the following pairs of goods and services as substitutes in production,
complements in production, or neither.
a. Bottled water and health club memberships
Bottled water and health club memberships are neither substitutes in production
b. French fries and baked potatoes
c. Leather boots and leather shoes
d. Hybrids and SUVs
e. Diet coke and regular coke
For a soda company that produces both on the same assembly line, they are
16. When a timber mill makes logs from trees it also produces sawdust, which is
used to make plywood.
a. Explain how a rise in the price of sawdust inuences the supply of logs.
The rise in the price of sawdust motivates timber mills to make more sawdust,
which thereby increases the demand for logs and raises the price of logs. There is
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3 8 C H A P T E R 3
b. Explain how a rise in the price of sawdust inuences the supply of plywood.
17. New Maple Syrup Sap Method
With the new way to tap maple trees, farmers could produce 10 times as
much maple syrup per acre.
Source: cbc.ca, February 5, 2014
The new technology increases the supply of maple syrup. At each price, the new
Use Figure 3.4 to work Problems 18 and 19.
18.a. Label the curves. Which curve shows
the willingness to pay for a pizza?
The demand curve is the downward
b. If the price of a pizza is $16, is there
a shortage or a surplus and does the
price rise or fall?
If the price of a pizza is $16, there is a
surplus of pizza; the quantity supplied
c. Sellers want to receive the highest
possible price, so why would they be
willing to accept less than $16 a pizza?
Sellers are willing to accept less than $16 because if they charge $16 the surplus
19.a. If the price of a pizza is $12, is there a shortage or a surplus and does the
price rise or fall?
If the price of a pizza is $12, there is a shortage of pizza; the quantity demanded of
b. Buyers want to pay the lowest possible price, so why would they be willing
to pay more than $12 for a pizza?
If the price of a pizza is $12 the shortage means that not all buyers can buy a
pizza. From their perspective they would rather pay more than $12 and be able to
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D E M A N D A N D S U P P LY 3 9
a. Draw a graph of the potato chip
market and mark in the
equilibrium price and quantity.
Figure 3.5 draws the supply and
demand curves for this market.
b. If the price is 60¢ a bag, is there
a shortage or a surplus, and
how does the price adjust?
At 60¢ a bag, there is a shortage of
potato chips and the price rises. At
21. In Problem 20, a new dip increases
the quantity of potato chips that
people want to buy by 30 million bags
per week at each price.
a. Does the demand for chips change?
Does the supply of chips change? Describe the change.
As the new dip comes onto the market, the demand for potato chips increases.
b. How do the equilibrium price and
equilibrium quantity of chips
change?
Demand increases by 30 million bags
a week. The demand curve shifts
rightward as shown in Figure 3.6 by
the shift from D to D1. The quantity
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Price
Quantity
demand
ed
Quantity
supplied
(cents per
bag)
(millions of bags a
week)
50 160 130
90 120 170
100 110 180
4 0 C H A P T E R 3
22. In Problem 20, if a virus destroys potato crops and the quantity of potato
chips produced decreases by 40 million bags a week at each price, how does
the supply of chips change?
The supply of potato chips decreases, and the supply curve shifts leftward by 40
million bags a week.
23. If the virus in Problem 22 hits just as the new dip in Problem 21 comes onto
the market, how do the equilibrium price and equilibrium quantity of chips
change?
The result by itself of the new dip entering the market is a price of 80¢ a bag and a
quantity of 160 million bags. But now with the virus a1ecting the market, at this
24. Strawberry Prices Drop as Late Harvest Hits Market
Shoppers bought strawberries in March for $1.25 a pound rather than the
$3.49 a pound they paid last year. With the price so low, some growers plowed
over their strawberry plants to make way for spring melons; others froze their
harvests and sold them to juice and jam makers.
Source: USA Today, April 5, 2010
a. Explain how the market for strawberries would have changed if growers had
not plowed in their plants but o1ered locals “you pick for free.”
If the growers had o1ered “you pick for free” deals, the supply of strawberries
increases. The demand for strawberries at local grocery stores would have
decreased as people substituted picking their own berries for buying them in the
b. Describe the changes in demand and supply in the market for strawberry
jam.
Growers increased the quantity of strawberries they sold to jam makers. The
increased supply of strawberries to made into jam decreases the price of these
25. “Popcorn Movie” Experience Gets
Pricier
Cinemas are raising the price of
popcorn. Demand for Oeld corn, which
is used for animal feed, corn syrup, and
ethanol, has increased and its price has
exploded. That’s caused some farmers
to shift from growing popcorn to
easier-to-grow Oeld corn.
Source: USA Today, May 24, 2008
Explain and illustrate graphically the
events described in the news clip in the
market for
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D E M A N D A N D S U P P LY 4 1
a. Popcorn
As illustrated in Figure 3.7, the farmers’ actions decrease the supply of popcorn
b. Movie tickets
In the market for movie tickets—
essentially the market for viewing
movies in the theater—popcorn and
viewing movies are complements. The
26. Watch Out for Rising Dry-Cleaning Bills
In the past year, the price of dry-cleaning solvent doubled. More than 4,000
dry cleaners across the United States disappeared as budget-conscious
consumers cut back. This year the price of hangers used by dry cleaners is
expected to double.
Source: CNN Money, June 4, 2012
a. Explain the e1ect of rising solvent prices on the market for dry cleaning.
Solvents are used to produce dry cleaning, so a rise in the price of solvents
increases the cost of dry cleaning. The increase in the cost of dry cleaning
b. Explain the e1ect of consumers becoming more budget conscious along
with the rising price of solvent on the price of dry cleaning.
Consumers becoming more budget conscious means that the demand for dry
cleaning decreases and the demand curve for dry cleaning shifts leftward.
c. If the price of hangers does rise this year, do you expect additional dry
cleaners to disappear? Explain why or why not.
The increase in the price of hangers raises the costs of dry cleaners but the cost
increase is much smaller than the cost increase that resulted from the doubling of
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Economics in the News
27. After you have studied Economics in the news on pp. 74–75, answer the
following questions:
a. What would happen to the price of bananas if TR4 spread to Central
America?
b. What are some of the substitutes for bananas and what would happen to
demand, supply, price, and quantity in the markets for these items if TR4
were to come to America?
Banana consumers could substitute other fruits, such as apples, peaches, or
c. What are some of the complements of bananas and what would happen to
demand, supply, price, and quantity in the markets for these items if TR4
were to come to America?
The classic complement for bananas is cereal. A rise in the price of bananas
d. When the price of bananas increased in 2008, did it rise by as much as the
rise in the rise in the price of oil? Why or why not?
In 2008 the price of oil rose by about 70 percent, so the 20 percent price hike in the
price of bananas was much less than the rise in price of oil. The price of oil is a
e. Why would the expectation of the future arrival of TR4 in the Americas have
little or no e1ect on today’s price of bananas?
If TR4 arrives in the Americas, the supply of bananas will decrease, thereby raising
the price. The rise in the future expected for some goods can decrease the current
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