Download Dr. Shishkin ECON 2106 Spring 2011 1 Assignment #4 Demand

Dr. Shishkin
Assignment #4
ECON 2106
Demand and Supply
Spring 2011
ANSWERS
1. What factor is changing quantity supplied without affecting the supply curve? Illustrate
your answer with a diagram.
The price of the good itself will affect quantity supplied without affecting the supply
curve. As price goes up or down, there is a movement along the supply curve, but the
curve itself does not move.
2. List the factors that affect quantity demanded by shifting the demand curve. Explain
how each factor should change to shift the demand curve to the right.
One factor that changes demand is a change in income. An increase in income increases
demand and shifts the demand curve rightward for a normal good. A decrease in income
increases demand and shifts the demand curve rightward for an inferior good.
A change in the price of a substitute or complement also changes demand. An increase in
the price of a substitute or a decrease in the price of a complement increase demand and
shifts the demand curve rightward.
Expectations, the number of buyers, and preferences also change demand. If people
expect their income to increase, or if they expect its price to be higher in the future, or if
the number of buyers increases, or if people's preferences for the good increase, demand
increases and the demand curve shifts rightward.
3. Suppose Katie, Mark, and Bobby are the only consumers in the market for ice cream.
Using the demand schedules in the table below, what is the market demand curve for ice
cream?
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Dr. Shishkin
ECON 2106
Spring 2011
Answer: t he market demand curve for ice cream can be built according to these numbers:
4. Soft drinks and milk are substitutes for consumers. Draw a graph showing the effect of
an increase in the price of milk on the demand for soft drinks.
5. Soft drinks are a normal good. Draw a graph showing the effect of a decrease in
income on the demand for soft drinks.
Same picture as above, but the demand curve shifts left.
6. List the factors that shift the supply curve. Explain what should happen to each factor
so that the supply curve shifts to the left.
The factors that change supply are
• productivity,
• the number of sellers,
• expectations,
• prices of resources,
• prices of related goods (substitutes and complements in production)
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Dr. Shishkin
ECON 2106
Spring 2011
A decrease in supply and a leftward shift in the supply curve will result from the
following:
A decrease in productivity,
An increase in input prices
An increase in the price of a substitute in production
A decrease in the price of a complement in production
An increase in expected future prices of the good
A decrease in the number of sellers
7. Suppose that the productivity used to produce computers advances. How does this
change affect the supply curve of computers? Draw a graph showing the effect of this
increase in productivity on the supply curve of computers.
An advance in productivity increases the supply of computers. Hence increases in
productivity shift the supply curve of computers rightward.
8. The table below indicates how many thousands of containers of ice cream three
different companies are willing to produce at different prices. Does this information agree
with the law of supply? Why or why not?
Yes, the information in the table is in accord with the law of supply because for all three
companies, as the price rises (falls), the quantity supplied increases (decreases).
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Dr. Shishkin
ECON 2106
Spring 2011
9. The table below shows supply schedules for the two nail salons in town, Nancy's Nails
and Fancy Nails. Calculate the market supply schedule of manicures.
Answer:
10. What are substitutes in production? Give two examples of these goods.
Goods are substitutes in production when one can be produced in place of the other, that
is, when the goods are produced using the same resources.
Cargo pants and jeans, cars and SUVs, digital cameras and camcorders.
Coke and Pepsi or Chevy and Ford are NOT substitutes in production because they are
made by different companies.
11. If the price of cream goes up, what should we expect to happen to the supply curve of
skim milk? Explain your answer.
These two goods are complements in production as these are byproducts of each other.
As price of cream goes up, its quantity supplied increases, and as more of cream
produced, more of skim milk will be produced as well. This increase in the output of
skim milk will take place at any price of skim milk itself, and will result in a rightward
shift in the supply curve.
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