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64 ❖ Chapter 4/The Market Forces of Supply and Demand
2. Here is an example of a monthly demand schedule for pizza:
Price of Pizza Slice
Number of Pizza Slices Demanded
$ 0.00
10
0.25
9
0.50
8
0.75
7
The demand curve is graphed in Figure 1.
3. Here is an example of a monthly supply schedule for pizza:
Price of Pizza Slice
Number of Pizza
Slices Supplied
Chapter 4/The Market Forces of Supply and Demand ❖ 65
The supply curve is graphed in Figure 2.
Examples of things that would shift the supply curve include changes in prices of inputs like
tomato sauce and cheese, changes in technology like more efficient pizza ovens or automatic
dough makers, changes in expectations about the future price of pizza, or a change in the
number of sellers.
4. If the price of tomatoes rises, the supply curve for pizza shifts to the left because there has
been an increase in the price of an input into pizza production, but there is no shift in
demand. The shift to the left of the supply curve causes the equilibrium price to rise and the
equilibrium quantity to decline, as Figure 3 shows.
66 ❖ Chapter 4/The Market Forces of Supply and Demand
but there is no shift in supply. The shift to the left of the demand curve causes the
equilibrium price to fall and the equilibrium quantity to decline, as Figure 4 shows.
Chapter Quick Quiz
1. b
Questions for Review
1. A competitive market is a market in which there are many buyers and many sellers of an
2. The demand schedule is a table that shows the relationship between the price of a good and
the quantity demanded. The demand curve is the downward-sloping line relating price and
3. A change in consumers' tastes leads to a shift of the demand curve. If the change in
consumers' tastes leads to an increase in demand, consumers want to buy more of this good
Chapter 4/The Market Forces of Supply and Demand ❖ 67
4. Because Harry buys more pumpkin juice when his income falls, pumpkin juice is an inferior
5. A supply schedule is a table showing the relationship between the price of a good and the
quantity a producer is willing and able to supply. The supply curve is the upward-sloping line
7. The equilibrium of a market is the point at which the quantity demanded is equal to quantity
supplied. If the price is above the equilibrium price, sellers want to sell more than buyers
8. When the price of beer rises, the demand for pizza declines, because beer and pizza are
complements and people want to buy less beer. When we say the demand for pizza declines,
9. Prices play a vital role in market economies because they bring markets into equilibrium. If
the price is different from its equilibrium level, quantity supplied and quantity demanded are
68 ❖ Chapter 4/The Market Forces of Supply and Demand
Problems and Applications
1. a. Cold weather damages the orange crop, reducing the supply of oranges and raising the
price of oranges. This leads to a decline in the supply of orange juice because oranges
b. People often travel to the Caribbean from New England to escape cold weather, so the
demand for Caribbean hotel rooms is high in the winter. In the summer, fewer people
travel to the Caribbean, because northern climates are more pleasant. The result, as
Chapter 4/The Market Forces of Supply and Demand ❖ 69
Figure 7
c. When a war breaks out in the Middle East, many markets are affected. Because a large
proportion of oil production takes place there, the war disrupts oil supplies, shifting the
supply curve for gasoline to the left, as shown in Figure 8. The result is a rise in the
2. The statement is false. As Figure 10 shows, in equilibrium the increase in demand for
notebooks results in an increased quantity demanded and the quantity supplied.
70 ❖ Chapter 4/The Market Forces of Supply and Demand
3. a. If people decide to have more children, they will want larger vehicles for hauling their
kids around, so the demand for minivans will increase. Supply will not be affected. The
result is a rise in both the price and the quantity sold, as Figure 12 shows.
c. The development of new automated machinery for the production of minivans is an
improvement in technology. This reduction in firms' costs will result in an increase in
supply. Demand is not affected. The result is a decline in the price of minivans and an
increase in the quantity sold, as Figure 14 shows.
Chapter 4/The Market Forces of Supply and Demand ❖ 71
Supply is not affected. The equilibrium price and quantity of minivans both rise, as Figure
12 shows.
e. The reduction in peoples' wealth caused by a stock-market crash reduces their income,
4. a. Film streaming services and TV screens are likely to be complements because you cannot
watch a film without a television. Film streaming services and movie tickets are likely to
movie tickets are likely to be substitutes for the same reason.
b. The technological improvement would reduce the cost of producing a TV screen, shifting
72 ❖ Chapter 4/The Market Forces of Supply and Demand
c. The reduction in the price of TV screens would lead to an increase in the demand for film
streaming services because TV screens and film streaming are complements. The effect
of this increase in the demand for film streaming is an increase in both the equilibrium
price and quantity, as shown in Figure 17.
The reduction in the price of TV screens would cause a decline in the demand for movie
tickets because TV screens and movie tickets are substitute goods. The decline in the
demand for movie tickets would lead to a decline in the equilibrium price and quantity
sold. This is shown in Figure 18.
Price of Film
Streaming
S
5. Technological advances that reduce the cost of producing computer chips represent a decline
in an input price for producing a computer. The result is a shift to the right in the supply of
Because computer software is a complement to computers, the lower equilibrium price of
computers increases the demand for software. As Figure 20 shows, the result is a rise in both the
equilibrium price and quantity of software.
74 ❖ Chapter 4/The Market Forces of Supply and Demand
6. a. When a hurricane in South Carolina damages the cotton crop, it raises input prices for
producing sweatshirts. As a result, the supply of sweatshirts shifts to the left, as shown
in Figure 22. The new equilibrium price is higher and the new equilibrium quantity of
sweatshirts is lower.
b. A decline in the price of leather jackets leads more people to buy leather jackets,
reducing the demand for sweatshirts. The result, shown in Figure 23, is a decline in both
the equilibrium price and quantity of sweatshirts.
Chapter 4/The Market Forces of Supply and Demand ❖ 75
c. The effects of colleges requiring students to engage in morning exercise in appropriate
attire raises the demand for sweatshirts, as shown in Figure 24. The result is an increase
in both the equilibrium price and quantity of sweatshirts.
76 ❖ Chapter 4/The Market Forces of Supply and Demand
d. The invention of new knitting machines increases the supply of sweatshirts. As Figure 25
shows, the result is a reduction in the equilibrium price and an increase in the equilibrium
quantity of sweatshirts.
Figure 25
7. Ketchup is a complement for hot dogs. Therefore, when the price of hot dogs rises, the
quantity demanded of hot dogs falls and this lowers the demand for ketchup. The end result
is that both the equilibrium price and quantity of ketchup fall. Because the quantity of
8. a. Quantity supplied equals quantity demanded at a price of $6 and quantity of 81 pizzas
(Figure 30).
Chapter 4/The Market Forces of Supply and Demand ❖ 77
9. The news of the increased health benefits from consuming oranges will increase the demand
for oranges, increasing both the equilibrium price and quantity. If farmers use a new fertilizer
10. a. Because flour is an ingredient in bagels, a decline in the price of flour would shift the
supply curve for bagels to the right. The result, shown in Figure 31, would be a fall in the
price of bagels and a rise in the equilibrium quantity of bagels.
78 ❖ Chapter 4/The Market Forces of Supply and Demand
Figure 32 Figure 33
What happens if the price of milk falls? Because milk is an ingredient in cream cheese,
the fall in the price of milk leads to an increase in the supply of cream cheese. This leads
b. In part (a), we found that a fall in the price of flour led to a rise in the price of cream
cheese and a rise in the equilibrium quantity of bagels. If the price of flour rose, the
opposite would be true; it would lead to a fall in the price of cream cheese and a fall in
the equilibrium quantity of bagels. Because the question says the equilibrium price of
cream cheese has risen, it could not have been caused by a rise in the price of flour.
What happens if the price of milk rises? From part (a), we found that a fall in the price of
Chapter 4/The Market Forces of Supply and Demand ❖ 79
Figure 34 Figure 35
11. a. As Figure 35 shows, the supply curve is vertical. The constant quantity supplied makes
sense because the basketball arena has a fixed number of seats at any price.
c.
Price
Quantity Demanded
Quantity Supplied
