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Economics
Supply and Demand Review
The test will be about Demand, Supply, Elasticity, Equilibrium, Shortages and Surpluses.
Demand:
A change in Quantity Demanded means that
What is a change in Demand?
CORRECT ANSWER UNDERLINED
CORRECT ANSWER UNDERLINED
Moving from one point on a demand curve to
another point on the same curve
Moving from one point on a demand curve to
another point on the same curve
OR
OR
Drawing a new demand curve
Drawing a new demand curve
Draw 2 graphs: one that shows an increase in
Quantity Demanded AND one that shows a
decrease in Quantity Demanded
Draw 2 graphs: one that shows an increase in
Demand AND a decrease in Demand
Increase in Quantity Demanded
Increase in Demand
P1
D
P2
QD1
DD2
D1
QD2
Decrease in Quantity Demanded
Decrease in Demand
P2
D
P1
D2
QD2
QD1
D1
What is the mnemonic (memory) device to help
you remember the determinants of Demand?
CSI:A
C omplementary good prices
S ubstitute good prices
I ncome of consumers
A ttitudes, Trends & Number of Consumers
Substitutes
If the price of a substitute increases, what
happens to the demand for the product being
graphed?
Demand for good increases
If the price of a substitute decreases, what
happens to the demand for the product being
graphed?
Demand for good decreases
Complements
If the price of a complement increases, what
happens to the demand for the product being
graphed?
Demand for good decreases
If the price of a complement decreases, what
happens to the demand for the product being
graphed?
Demand for good increases
Income
If consumer income increases, what will
happen to the demand for a product?
Demand increases
If consumer income decreases, what will
happen to the demand for a product?
Demand decreases
An increase in taxes will
___decrease_______ a person’s income
A decrease in taxes will
_____increase_______ a person’s income
Attitudes, Trends, Number of Consumers
Attitudes, Trends, Number of Consumers
A change in the amount of buyers of a product
would be
Number of Consumers
Anything that makes the good more popular
will ____increase_____ the demand for the
good
New information about a product would be
considered
Attitudes
A good’s popularity with society would be
considered
Trends
Anything that makes the good less popular will
_____decrease______ the demand for the
good
Supply
What is a change in Quantity Supplied?
What is a change in Supply?
CORRECT ANSWER UNDERLINED
CORRECT ANSWER UNDERLINED
Moving from one point on a supply curve to
another point on the same curve
Moving from one point on a supply curve to
another point on the same curve
OR
OR
Drawing a new supply curve
Drawing a new supply curve
Draw 2 graphs: one that shows an increase in
Quantity Supplied AND one that shows a
decrease in Quantity Supplied
Draw 2 graphs: one that shows an increase in
Supply AND a decrease in Supply
Increase in Quantity Supplied
Increase in Supply
S1
S2
S
P2
P1
QS1
QS2
Decrease in Quantity Demanded
Decrease in Supply
S2
S1
P2
D
P1
QD2
QD1
What is the mnemonic (memory) device to help
you remember the determinants of Supply?
TING
T echnology
I nput prices
N umber of sellers
G overnment Action
Inputs
If the price of an input increases and the
input becomes more expensive, what impact
will it have on the Supply of a good?
Supply decreases
If the price of an input decreases and the
input becomes less expensive, what impact will
it have on the Supply of a good?
Supply increases
Technology
Government Action
A change in technology will always cause what
type of change in Supply?
What happens to the supply of a good if the
government imposes a sales tax on that good?
Supply decreases
Increase in Supply
A tariff, an embargo, and trade sanctions will
all cause what type of change in Supply?
Supply decreases
What will happen to the Supply of a good if
the government removes a tariff, embargo or
trade sanctions?
Supply increases
Number of Sellers
If manufacturers go bankrupt, go out of
business or are merged together, what will
happen to the Supply of the good they make?
Supply decreases
If more manufacturers begin to make the good,
what will happen to the Supply of the good they
make?
Supply increases
If a natural disaster occurs, what will happen to
the Supply of a good?
Supply decreases
What happens to the supply for cupcakes if
the price of sugar falls?
Supply increases
What happens to the supply of lawn care if
the minimum wage is increased?
Supply decreases
Equilibrium:
Where is the equilibrium point found on a
graph?
Where D and S intersect
At the equilibrium point, what is true about
the number of buyers (QD) compared to the
number of sellers (QS)?
Draw a graph for a market and label the
equilibrium Price and equilibrium Quantity
QS = QD
S
Pe
D
Qe
Draw a correctly labeled graph that shows an
increase in Demand
(both curves are on a market graph)
Draw a correctly labeled graph that shows a
decrease in Demand
(both curves are on a market graph)
S
S
P2
P1
P1
P2
D2
D1
D1
Q1
Q2
D2
Q2
Q1
What happens to the equilibrium Price?
Price increases
What happens to the equilibrium Price?
Price decreases
What happens to the equilibrium Quantity?
Quantity increases
What happens to the equilibrium Quantity?
Price decreases
Draw a correctly labeled market graph that
shows an increase in Supply
(both curves are on a market graph)
Draw a correctly labeled graph that shows a
decrease in Supply
(both curves are on a market graph)
S1
S2
S2
P1
S1
P2
P2
P1
D1
Q1
Q2
D1
Q2
Q1
What happens to the equilibrium Price?
Price decreases
What happens to the equilibrium Quantity?
Quantity increases
In the market for daycare: the number of
children born in the US has steadily decreased
since the year 2000
What happens to the equilibrium Price?
Price increases
What happens to the equilibrium Quantity
Quantity decreases
In the market for strawberries: there is a
disease that is attacking the strawberry
plants this growing season
Does this headline impact the Supply or
Demand for daycare?
Demand for daycare
Does this headline impact the Supply or
Demand for strawberries?
Supply of strawberries
Will it cause an increase or a decrease?
Increase in Demand
Will it cause an increase or a decrease?
Decrease in Supply
What will happen to the Price and Quantity in
the market?
Price will increase
Quantity will increase
In the market for cheese: the price of
crackers decreases?
What will happen to the Price and Quantity in
the market?
Price will increase
Quantity will decrease
In the market for pizza: the price of cheese
increases?
Does this headline impact the Supply or
Demand for cheese?
Demand for Cheese
Does this headline impact the Supply or
Demand for pizza?
Supply of pizza
Will it cause an increase or a decrease?
Increase in Demand
Will it cause an increase or a decrease?
Decrease in Supply
What will happen to the Price and Quantity in
the market?
Price will increase
Quantity will increase
What will happen to the Price and Quantity in
the market?
Price will increase
Quantity will decrease
In the market for ipods: the government mails
a $500 stimulus package check to every
household in America?
In the market for potato chips: two new chip
companies begin producing chips?
Does this headline impact the Supply or
Demand for ipods?
Demand for ipods
Does this headline impact the Supply or
Demand for potato chips?
Supply of potato chips
Will it cause an increase or a decrease?
Increase in Demand
Will it cause an increase or a decrease?
Increase in Supply
What will happen to the Price and Quantity in
the market?
Price will increase
Quantity will increase
In the market for apples: the surgeon general
finds that eating them helps give a person
better looking skin
What will happen to the Price and Quantity in
the market?
Price will decrease
Quantity will increase
In the market for corn: a new machine is
developed that greatly reduces the time
needed to harvest crops
Does this headline impact the Supply or
Demand for apples?
Demand for apples
Does this headline impact the Supply or
Demand for corn?
Supply of Corn
Will it cause an increase or a decrease?
Increase in Demand
Will it cause an increase or a decrease?
Increase in Supply
What will happen to the Price and Quantity in
the market?
Price will increase
Quantity will increase
In the market for cars: the US places a tariff
on cars imported from Europe and Asia
What will happen to the Price and Quantity in
the market?
Price will decrease
Quantity will increase
In the market for French fries: the price of
onion rings drops
Does this headline impact the Supply or
Demand for cars?
Supply of Cars
Does this headline impact the Supply or
Demand for French fries?
Demand for French fries
Will it cause an increase or a decrease?
Decrease in Supply
Will it cause an increase or a decrease?
Decrease in Demand
What will happen to the Price and Quantity in
the market?
Price will increase
Quantity will decrease
What will happen to the Price and Quantity in
the market?
Price will decrease
Quantity will decrease
Shortages and Surpluses:
In a surplus, circle the correct relationship
between QS and QD
In a shortage, circle the correct relationship
between QS and QD
QS = QD
QS > QD
QD > QS
QS = QD
QS > QD
QD > QS
Draw a graph that shows a surplus. You must
label the QD and the QS
Draw a graph that shows a shortage. You must
label the QD and the QS
S
S
P
P
D
QD
QS
D
QS
QD
If there is a surplus in a market:
If there is a shortage in the market:
Is the price higher or lower than the
equilibrium price?
Higher than equilibrium
Is the price higher or lower than the
equilibrium price?
Lower than equilibrium
What direction will the price move to reach
the equilibrium?
It will fall lower
What direction will the price move to reach
the equilibrium?
It will rise higher
Price Ceilings and Price Floors
A Price Ceiling causes a permanent
A Price Floor causes a permanent
_____shortage________
_______surplus___________
Draw a graph that shows a price ceiling. You
must label the QD and the QS
Draw a graph that shows a price floor. You
must label the QD and the QS
S
S
Price
Floor
Price
Ceiling
D
D
QS
QD
QD
QS
If there is a price ceiling in a market:
If there is a price floor in the market:
Is the price higher or lower than the
equilibrium price?
Lower than equilibrium
Is the price higher or lower than the
equilibrium price?
Higher than equilibrium
Is the price ceiling intended to help the buyers
or the sellers?
Help the buyers
Is the price floor intended to help the buyers
or the sellers?
Help the sellers
Elasticity
Elasticity is the sensitivity of a good’s demand
to a change in price
In a situation with Elastic demand, which will
be the bigger movement?
Explain this in other words:
The change in Price
or
The change in Quantity
How much does the Q of a good change
because buyers change their mind about
purchasing the product
Inelastic demand
Elastic demand
When the Price of a good changes, __FEW___
people change their minds about buying the
good
When the Price of a good changes, __MANY__
people change their minds about buying the
good
Compared to a normal demand curve, an
inelastic demand curve is what shape?
steeper
Draw a graph with an inelastic demand curve.
Show the price increasing, as well as the
change in quantity
Compared to a normal demand curve, an elastic
demand curve is what shape?
flatter
Draw a graph with an elastic demand curve.
Show the price increasing, as well as the
change in quantity
P2
P2
P1
P1
D
D
Q2
Q1
The percentage change in Price is larger than the
percentage change in Quantity
…in other words, the number of buyers who stop
buying the product when the price increased was
small
In a situation with Inelastic demand, which will
be the bigger movement?
The change in Price
or
The change in Quantity
Q2
Q1
The percentage change in Quantity is larger than
the percentage change in Price
…in other words, the number of buyers who stop
buying the product when the price increased was
large
What is the formula for Total Revenue?
Total Revenue = Price of the good times
Quantity sold
TR = P x Q
When using the Total Revenue Test, what
directions do Price and Total revenue move
when demand is elastic?
When using the Total Revenue Test, what
direction do Price and Total revenue move
when demand is inelastic?
Opposite directions
Same direction
Use the Total Revenue Test to determine
whether the good has Elastic or Inelastic
demand:
Use the Total Revenue Test to determine
whether the good has Elastic or Inelastic
demand:
Old
New
P
11
10
Q
6
7
TR
66
70
Old
New
P
5
8
Direction Price moves: ↑ ↓
Direction Price moves: ↑
Direction TR moves: ↑
Direction TR moves: ↑
Demand for this good is:
Elastic
↓
Q
10
8
↓
↓
Demand for this good is:
Inelastic
TR
50
64
Fill in the flow chart for finding Market Equilibrium:
Equilibrium Flow Chart
Remember that you will always shift ONE curve
Does a good change
price in the problem?
YES
NO
Figure out the relationship between them
Figure out if the information in the headline will
Use them together?
______Complements______
shift the __Demand_____ curve
Use them in place of each other?
______Substitutes________
change the __Number of people who will__buy
the good OR change the _number of products __
there are for sale
Number of buyers changes?
shift the ___Demand___ curve
shift the ___Demand_____ curve
I_ncome of consumers___
Use one to make the other?
A_ttitudes, Trends & Number of Consumers__
_______Inputs___________
shift the ___Supply_______ curve
Number of goods for sale changes?
shift the ___Supply_______ curve
T__echnology____________
N_umber of sellers_________
G_overnment Action________