Download Practice Exercise on Shifting Supply and Demand

In class problems on Shifting the Supply and Demand
Dr. Claudia Strow
Explain what happens to the equilibrium price and quantity of apples (, , or stays the same)
when the following happens. Also note which curve is affected (S or D).
curve
price
quantity
1. Rot destroys many of the apple crops
2. Much of the orange crop is destroyed
due to a freeze (assume oranges are a substitute
for apples)
3. New planting technology is created
4. Incomes fall & apples normal
goods
5. A report is released that a pesticide used
to grow apples is cancerous
6. Assume caramel and apples
are complements and the price of sugar falls
7. More schools start celebrating with fall festivals
with bobbing for apples and at the same time
wages of apple pickers rise.
8. The profitability of corn (an alternate good producers
could produce) increases and at the same time consumers
expect the price of apples to fall in the future
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Practice Exercise on Shifting Supply and Demand
Economics
Dr. Claudia Strow
I. In the following situations evaluate what happens to supply or demand for new homes in
Bowling Green and how this affects the equilibrium price and quantity exchanged. First analyze
which curve(s) are affected and in which direction it shifts. Then state what happens to the price
and quantity of new homes.
Hint: you may find it helpful to graph the shifts in order to determine how price and quantity
are affected.
Curve
price
quantity
(S or D) (,, no change) (,, no change)
1. Shipping costs for new home suppliers fall
due to lower gas prices
2. The population decreases
3. Apartment rents rise
4.
Incomes fall due to a slowing economy and
new homes are a normal good
5. GM builds a new plant in Bowling Green
so lots of new families move into town.
6. There is a shortage of brick
7. The Parade of Homes is held increasing people’s
taste for new homes and at the same time
the wages of construction workers rise
8. The price of lumber in Bowling Green falls and
at the same time the supply of used homes on the market
increases
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II. In the following situations evaluate what happens to supply or demand for domestically
produced new cars and how this affects the equilibrium price and quantity exchanged. First
analyze which curve(s) are affected and in which direction it shifts. Then state what happens to
the price and quantity of new cars. Hint: you may find it helpful to graph the shifts in order to
determine how price and quantity are affected.
curve
price
quantity
1. Trade restrictions raise the price of foreign
produced cars.
2. Workers at domestic car manufacturer plants
are able to negotiate higher wages.
3. Banks are offering easier access to loans at
lower interest rates.
4. Car pooling becomes more popular as an advertising
campaign promoting environmental responsibility is
released.
5. Income levels fall as many lose their jobs in the current
recession. Assume new cars are a normal good.
6. Consumers expect prices of new cars to rise in the future
and at the same time a shortage of steel causes production
costs to rise.
7. The price of car insurance rises and at the same time new car
manufacturers expect the prices of new cars to rise in the future.
8. Driving classic (older model) cars becomes more popular.
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