CHAPTER 4
DEMAND, SUPPLY, AND MARKETS
SOLUTIONS TO END OF CHAPTER PROBLEMS
1.
a. This should shift the demand curve for cigarettes to the right. The equilibrium price and
b. An increase in the price of a substitute should shift the demand curve for cigarettes to the
2.
a. Complements
3. Five demand shifters mentioned in the textbook that could cause an increase in demand in-
clude an increase in income if the product is normal (a decrease in income if the product is
4. There are two reasons why producers offer more for sale when the price rises. First, as the
price increases, other things constant, a producer becomes more willing to supply the good.
5. The law of supply states that the quantity supplied of a good is usually directly related to its
6. Five supply shifters mentioned in the textbook that could cause an increase in supply include
7.
a. Such credits decreased the demand for oil and lowered the world price.
8.
a. The supply curve shifts left, equilibrium price rises, and equilibrium quantity falls.
b. Assuming cattle can be substituted between dairy and livestock uses, dairy use becomes
10. A shortage means the quantity demanded exceeds the quantity supplied. Some buyers would
11.
Chapter 4 Demand, Supply, and Markets 3
At PH (a price above equilibrium price P), quantity supplied exceeds quantity demanded by
(Q SH – QDH). The amount actually purchased is QDH, which is less than the amount pur-
12. a.
Price per
Bushel
Quantity Demanded
(millions of bushels)
Quantity Supplied
(millions of bushels)
Surplus/
Shortage
Will Price
Rise or Fall?
$1.80
320
200
120 shortage
Rise
2.00
300
230
Rise
2.20
270
270
Equilibrium
No
movement
230
300
200
330
180
350
b. When quantity demanded exceeds quantity supplied, this creates a shortage in the mar-
and equilibrium price would change.
13.
a. True; otherwise, there would be a surplus.
14. As wages rise, the supply curve shifts leftward, increasing equilibrium price and reducing
equilibrium quantity. The increase in the price of aluminum (a substitute for steel) should
15. The following diagram shows the demand and supply for unskilled workers. At equilibrium,
the wage is W1 and Q1 is the quantity of unskilled labor. Suppose minimum wage W2 is