Download Supply and Demand Worksheet_demand_supply_shifter_solutions

ECO 161
Supply and Demand Worksheet
1. For each of the following describe how the demand for orange juice will be affected? Be sure to
determine which, if any, of the demand shifters is at work.
a. The New York Times reports that drinking orange juice will lower your risk of cancer, increase you IQ
and increase your sex appeal.
This is an increase in tastes and preferences so demand for OJ shifts to the right.
b. The price of apple juice increases.
This is an increase in the price of a substitute, so demand for OJ shifts to the right.
c. The economy goes into a recession and orange juice is a normal good.
This is a decrease in income, so because OJ is a normal good, demand shifts to the left.
d. Consumers expect the price of orange juice to rise in the future because a hurricane damaged the
orange crop in Florida.
An expectation of a higher price of OJ in the future causes demand to shift to the right now.
e. The price of orange juice drops.
This will not cause a shift in the demand for OJ, it will cause the quantity of OJ to increase along the
demand curve.
2. For each of the following describe how the supply of academic textbooks will be affected? Be sure to
determine which, if any, of the supply shifters is at work.
a. Publishers have developed a more efficient way of mass-producing textbooks.
Better technology shifts supply to the right.
b. The price of paper has increased.
A higher input price (the paper) shifts supply to the left.
c. A boom in the market for self-help books has increased the price consumers are willing to pay for
self-help books.
The higher price of a related output (self-help books) would decrease the supply of textbooks.
d. Several publishing companies have failed and have left the industry.
Fewer sellers shifts the supply to the left.
e. The government provides a $5 subsidy to every new textbook purchased.
This effectively makes it less costly to produce each textbook so it acts in the same was as a decrease
in the price of an input, shifting supply to the right.
3. Suppose the market for MP3 players is in equilibrium. How will each of the following changes in
demand and/or supply affect equilibrium price and equilibrium quantity in this market? Use supply and
demand diagrams to verify your answers.
a. Supply decreases and demand is constant.
P up, Q down
b. Supply increases and demand is constant.
P down, Q up
c. Demand increases and supply is constant.
P up, Q up
d. Demand decreases and supply is constant.
P down, Q down
e. Demand and supply both increase.
P ambiguous, Q up
f. Demand and supply both decrease.
P ambiguous, Q down
g. Demand increases and supply decreases.
P up, Q ambiguous
h. Demand decreases and supply increases.
P down, Q ambiguous
4. More Advanced.
Suppose the supply of a good is given by the equation: P = 4 + Qs
Demand for this good is given by the equation: P = 24 – 4Qd
Graph both of these functions. Use algebra to solve for equilibrium price and quantity.
You also need an accurate graph here.
4 + Q = 24 – 4Q
5Q = 20 Q = 4, P = $8
Now there is a shift in the demand curve and the new demand curve is given by: P = 34 – 4Qd.
Add this demand curve to your graph and solve for the new equilibrium price and quantity.
Also need a good graph showing the shift.
4 + Q = 34 – 4Q
5Q = 30 Q = 6, P = $10