Chapter 4:
1. Is the market for laptop computers local, national, or global?
Answer: The market is global. Manufacturers sell to dealers throughout the world.
2. Sid moves from New York City, where he lived in a small condominium, to rural Minnesota, where he
buys a big house on five acres of land. Using the law of demand, what do you think is true of land prices
in New York relative to those in rural Minnesota?
Answer: Holding other variables such as incomes and tastes constant, land in rural
3. The following table shows
demand curve.
Price Quantity Demanded
(dollars per ounce) (ounces per week)
$15 5 oz.
12 10
9 15
6 20
3 25
Answer: See Exhibit 4.1 below
4. The following table shows friends, Barbara
and Nancy. If Hillary, Barbara, and Nancy constitute the whole market for Cherry Blossom Makeup,
complete the market demand schedule and graph the market demand curve.
Price Quantity Demanded
(dollars per ounce) (ounces per week)
Hillary Barbara Nancy Market
$15 5 0 15 _____
12 10 5 20 _____
9 15 10 25 _____
6 20 15 30 _____
3 25 20 35 _____
Answer: See demand schedule and Exhibit 4.2 below.
5. What would be the effects of each of the following on the demand for hamburger in Hilo, Hawaii. In
each case, identify the responsible determinant of demand.
a. The price of chicken falls.
b. The price of hamburger buns doubles.
c. Scientists find that eating hamburger prolongs life.
d. The population of Hilo doubles.
6. What would be the effect of each of the following on the demand for Chevrolets in the United States?
In each case, identify the responsible determinant of demand.
a. The price of Fords plummets.
b. Consumers believe that the price of Chevrolets will rise next year.
c. The incomes of Americans rise.
d. The price of gasoline falls dramatically.
7. The following graph shows three market demand curves for cantaloupe. Starting at point A,
a. which point represents an increase in quantity demanded?
b. which point represents an increase in demand?
c. which point represents a decrease in demand?
d. which point represents a decrease in quantity demanded?
8. Using the demand curve, show the effect of the following events on the market for beef:
a. Consumer income increases.
b. The price of beef increases.
c.
d. The price of chicken (a substitute) increases.
e. The price of barbecue grills (a complement) increases.
Answers:
a. Assuming that beef is a normal good, demand for beef increases with consumer income,
b. An increase in the price of beef, ceteris paribus, decreases the quantity of beef demanded.
d. An increase in the price of a substitute increases the demand for beef. The equilibrium price
and quantity of beef traded both increase.
9. Draw the demand curves for the following goods. If the price of the first good listed rises, what will
happen to the demand for the second good, and why?
a. hamburger and ketchup.
b. Coca-Cola and Pepsi.
c. camera and film.
d. golf clubs and golf balls.
e. a skateboard and a razor scooter.
Answers:
a. Hamburger and ketchup are complements. An increase in the price of hamburger will decrease
the demand for ketchup.
c . Cameras and film are complements. An increase in the price of a camera will decrease the
demand for film.
e. Assuming that skateboards and razor scooters are substitutes, an increase in the price of
skateboards will increase the demand for razor scooters.
10. If the price of ice cream increased,
a. what would be the effect on the demand for ice cream?
b. what would be the effect on the demand for frozen yogurt?
11. Using the graph below, answer the following questions:
a. What is the shift from D1 to D2 called?
b. What is the movement from b to a called?
c. What is the movement from a to b called?
d. What is the shift from D2 to D1 called?
Answers:
a. The shift from D1 to D2 is called an increase in demand.
12. Felix is a wheat farmer who has two fields he can use to grow wheat. The first field is right next to his
house and the topsoil is rich and thick. The second field is 10 miles away in the mountains and the soil is
rocky. At current wheat prices, Felix just produces from the field next to his house because the market
price for wheat is just high enough to cover his costs of production including a reasonable profit. What
would have to happen to the market price of wheat for Felix to have the incentive to produce from the
second field?
Answer: The market price of wheat would have to rise for Felix to have the incentive to
13. Show the impact of each of the following events on the oil market.
a. OPEC becomes more effective in limiting the supply of oil.
b. OPEC becomes less effective in limiting the supply of oil.
c. The price for natural gas (a substitute for heating oil) rises.
d. New oil discoveries occur in Alaska.
e. Electric and hybrid cars become subsidized and their prices fall.
a) The supply of oil decreases, reducing the quantity exchanged and pushing up the price of
oil.
14. The following table shows
curve on a graph.
Price Quantity Supplied
(dollars per barrel) (barrels per month)
$ 5 10,000
10 15,000
15 20,000
20 25,000
25 30,000
Answer: See Exhibit 4.3 below.
15. The following table shows the supply schedules for Rolling Rock and two other petroleum
companies, Armadillo Oil and Pecos Petroleum. Assuming these three companies make up the entire
supply side of the oil market, complete the market supply schedule and draw the market supply curve on
a graph.
Price Quantity Supplied (barrels per month)
(dollars Rolling
per barrel) Rock Armadillo Pecos Market
$ 5 10,000 8,000 2,000 ______
10 15,000 10,000 5,000 ______
15 20,000 12,000 8,000 ______
20 25,000 14,000 11,000 ______
25 30,000 16,000 14,000 ______
Answer: See the market supply schedule and Exhibit 4.4 below.
16. If the price of corn rose,
a. what would be the effect on the supply of corn?
b. what would be the effect on the supply of wheat?
17. Using the graph below, answer the following questions:
a. What is the shift from S1 to S2 called?
b. What is the movement from a to b called?
c. What is the movement from b to a called?
d. What is the shift from S2 to S1 called?
Answers: a. The shift from S1 to S2 is called an increase in supply; b. The movement from a
18. What would be the effect of each of the following on the supply of salsa in the United States? In
each case, identify the responsible determinant of supply.
a. Tomato prices skyrocket.
b. Congress places a 26 percent tax on salsa.
c. Ed Scissorhands introduces a new, faster vegetable chopper.
d. J. Lo, Beyonce, and Adam Sandler each introduce a new brand of salsa.
19. What would be the effects of each of the following on the supply of coffee worldwide? In each case,
identify the responsible determinant of supply.
a.
b. Wages of coffee workers in Latin America rise as unionization efforts succeed.
c. Indonesia offers big subsidies to its coffee producers.
d. Genetic engineering produces a super coffee bean that grows faster and needs less care.
e. Coffee suppliers expect prices to be higher in the future.
Answers: a. Supply decreases (Determinant: Bad weather); b. Supply decreases
future price rises).
20. The following graph shows three market supply curves for cantaloupe. Compared to point A, which
point represents:
a. an increase in quantity supplied?
b. an increase in supply?
c. a decrease in quantity supplied?
d. a decrease in supply?
21. The following table shows the hypothetical monthly demand and supply schedules for cans of
macadamia nuts in Hawaii.
Price Quantity Demanded (cans) Quantity Supplied (cans)
$6 700 100
7 600 200
8 500 300
9 400 400
10 300 500
a. What is the equilibrium price of macadamia nuts in Hawaii?
b. At a price of $7 per can, is there equilibrium, a surplus, or a shortage? If it is a surplus or shortage,
how large is it?
c. At a price of $10, is there equilibrium, a surplus, or a shortage? If it is a surplus or shortage, how large
is it?
22. When asked about the reason for a lifeguard shortage that threatened to keep one–
Maybe they prefer carpal tunnel syndrome to
Commissioner to do in order to alleviate the shortage?
Answer: The Deputy Commissioner may be correct. Fewer young people may want to be
23. If a price is above the equilibrium price, explain the forces that bring the market back to the
equilibrium price and quantity. If a price is below the equilibrium price, explain the forces that bring the
market back to the equilibrium price and quantity.
Answer: When a price is above the equilibrium price, the quantity of a good or service
7. The market for baseball tickets at your college stadium, which seats 2,000, is the following:
a. What is the equilibrium price?
b. What is unusual about the supply curve?
c. At what prices would a shortage occur?
d. At what prices would a surplus occur?
e. Suppose that the addition of new students (all big baseball fans) next year will add 1,000 to the
new equilibrium price?
a) The equilibrium price equals $4, where the quantity of baseball tickets demanded equals
25. Assume the following information for the demand and supply curves for good Z.
a. Draw the corresponding supply and demand curves.
b. What are the equilibrium price and quantity traded?
c. Would a price of $9 result in a shortage or a surplus? How large?
d. Would a price of $3 result in a shortage or a surplus? How large?
e. If the demand for Z increased by 15 units at every price, what would the new equilibrium price and
quantity traded be?
f. Given the original demand for Z, if the supply of Z were increased by 15 units at every price, what would
the new equilibrium price and quantity traded be?
Answers:
a)