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Economics 210
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Name:
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Exercises for Gwartney, Stroup, Sobel, and Macpherson, Chapter 3, “Supply, Demand,
and the Market Process.”
You will work through three workbooks. The first introduces demand, the second supply,
and the third the market process.
Open the workbook GSSM3_demand.xls.The bold names before the descriptive material
below is the name of the sheet to which you are to refer when answering a question.
Individuals and Market. This spreadsheet shows how the market demand curve is
derived from individuals' demand. The horizontal distance from the vertical (price) axis
shows the quantity that Chris and Dean are willing and able to purchase at each price.
Adding these two quantities results in a market demand curve. The process is the same
when the number of people are in the millions.

This sheet does not have a counterpart in the text It is here for your information You
need not answer any questions related to this sheet
Individuals and Market(2). This spreadsheet shows the market quantity demanded and
the quantity demanded by Chris and Dean for any given price. Each of the two buys more
when the price falls, so the quantity demanded in the market increases when price
decreases. Both the individual demand curves and the market demand curve obey the law
of demand.

This sheet does not have a counterpart in the text It is here for your information You
need not answer any questions related to this sheet
A Demand Curve. This spreadsheet shows different price quantity combinations along a
demand curve. Other things constant, as the price increases, consumers are willing and
able to demand a lower quantity. This is the “Law of Demand.” This “demand curve”
differs from the one in the text in that it is linear. The functional form does not matter for
anything considered in this chapter. This corresponds to Exhibit 1 in the text.
1. According to the text, what behavior on the part of consumers accounts for the Law
of Demand?
2. By how many units does the quantity demanded change per one dollar change in the
price of this good? Show a computation.
Changed Quantity. This spreadsheet shows how the quantity demanded responds to a
change in price of the good. By using the scroll bar, you can see the quantity for each
price between $0 and $300, in increments of $10. This corresponds to Exhibit 1 in the
text.
3. Use the scroll bar to examine how quantity demanded changes as the price goes up or
down. Choose two prices and record the resulting quantities. Calculate Q/P (see
page 25 for notation).
Consumer Surplus. Consumer Surplus is the difference between what consumers are
willing and able to pay for a unit of a good and what they must pay to get that unit. For
all units for which the amount consumers are willing and able to pay exceeds the price,
they will buy the units and will receive surplus value. For the “marginal” unit price
equals what some consumer is willing and able to pay; for this unit, the consumer is
indifferent between buying it or not. The area between the amount consumers are willing
and able to pay (the height of the demand curve) and the price is the Consumer Surplus.
This corresponds to Exhibit 2 in the text.
4 Click on the cell beneath the “Click below for price” instruction Select a price.
Record the resulting quantity and Consumer Surplus. Select a second price, and
record the resulting quantity and Consumer Surplus.
P1 = _____ Q1 = _____
P2 = _____ Q2 = _____
CS1 = _____
CS2 = _____
Elasticity. Elasticity is a measure the responsiveness of quantity demanded to price. At
this point, the computation of elasticity is not important Just realize that a larger value
mean “more elastic.” The sheet allows you to choose an elasticity value and it shows you
how much the quantity demanded changes when price increases from $150 to $200 per
unit. The curves are constructed so that for each one Q = 30 when P = $150. This
corresponds to Exhibit 3 in the text.
5 Select two values by clicking on the cell below the “Click below to select elasticity”
instruction. Record the change in quantity. In the table below E1 is the first elasticity
value that you choose, and E2 is the second value.
For E1, when P = $200, Q = ______. Over the price range $150 to $200,
Q/P = ______.
For E2, when P = $200, Q = ______. Over the price range $150 to $200,
Q/P = ______.
Changed Demand. This spreadsheet shows how the demand curve responds to a change
in any of the determinants of demand other the good’s own price. The quantity demanded
at each price becomes different from the values on the initial demand curve. This
corresponds to Exhibits 4 and 5 in the text.
6. Use the scroll bar to examine how the demand curve shifts. The initial demand curve
P-intercept is 300. (The P-intercept is the price at which Q = 0.) The new P-intercept
is _________. Identify some factors that might cause a shift in this direction. Refer to
the text, pages 64.
Changed Demand (2). This spreadsheet shows how the quantity demanded at each price
responds to a change in any the determinants of demand other than the good’s own price.
It shows the quantity demanded at a specified price with the initial demand curve and
with the new demand curve. This corresponds to Exhibits 4 and 5 in the text.
7. Shift the demand curve as you did in question number 3. Compare the quantity
demanded at the initial price as indicated by the initial and the new demand curve.
Use the scroll bar to choose a price. The price is _________. At that price the
quantity demanded on the initial demand curve is __________; on the new demand
curve, the quantity demanded is __________.
Demand Shifters. This spreadsheet shows three of the determinants of demand. A
change in any of these shifts the demand curve. This corresponds to Exhibits 4 and 5 in
the text.
6. Use the scroll bars to determine how changes in the determinants of demand affect
the position of the demand curve.
a. Increasing the price of a substitute good shifts the demand curve to the
__________ (right/left).
b. Increasing the price of a complementary good shifts the demand curve to the
__________ (right/left).
c. Decreasing the income level shifts the demand curve to the __________
(right/left).
Refer to GSSM3_supply.xls” in answering the questions below.
Individuals and Market. This spreadsheet shows how the market supply curve is
derived from individuals' supply decisions. The horizontal distance from the vertical
(price) axis shows the quantity that Kelley and Lee are willing and able to sell at each
price. Adding these two quantities results in a market supply curve. The process is the
same when the number of sellers are in the thousands.

This sheet does not have a counterpart in the text It is here for your information You
need not answer any questions related to this sheet
Individuals and Market(2). This spreadsheet shows the market quantity supplied and
the quantity supplied by Kelley and Lee for any given price. Each of the two offers to sell
more when the price increases, so the quantity supplied in the market increases when
price increases. Both the individual supply curves and the market supply curves obey the
law of supply.

This sheet does not have a counterpart in the text It is here for your information You
need not answer any questions related to this sheet
A Supply Curve. This spreadsheet shows different price quantity combinations along a
supply curve. Other things constant, as the price increases, the supplier chooses to supply
a higher quantity.
7. By how many units does the quantity demanded change per one dollar change in the
price of this good? Show a computation.
Producer Surplus.
Changed Quantity. This spreadsheet shows how the quantity supplied responds to a
change in price of the good.
8. Use the scroll bar to examine how quantity supplied changes as the price goes up or
down. Choose two prices and record the resulting quantities. Calculate Q/P (see
page 25 for notation).
Producer Surplus. Producer Surplus is the difference between what sellers are willing
and able to accept for a unit of a good and what they are paid for that unit. For all units
for which the amount producers are willing and able to accept is lower than the price,
they will sell the units and will receive surplus value. For the “marginal” unit price equals
what some producer is willing and able to accept; for this unit, the producer is indifferent
between selling it or not. The area between the amount producers are willing and able to
accept (the height of the supply curve) and the price is the Producer Surplus. This
corresponds to Exhibit 7 in the text.
4 Click on the cell beneath the “Click below for price” instruction Select a price.
Record the resulting quantity and Producer Surplus. Select a second price, and record
the resulting quantity and Producer Surplus.
P1 = _____ Q1 = _____
P2 = _____ Q2 = _____
PS1 = _____
PS2 = _____
Elasticity. Elasticity is a measure the responsiveness of quantity supplied to price. At this
point, the computation of elasticity is not important Just realize that a larger value mean
“more elastic.” The sheet allows you to choose an elasticity value and it shows you how
much the quantity demanded changes when price increases from $150 to $200 per unit.
The curves are constructed so that for each one Q = 30 when P = $150. This corresponds
to Exhibit 8 in the text.
5 Select two values by clicking on the cell below the “Click below to select elasticity”
instruction. Record the change in quantity. In the table below E1 is the first elasticity
value that you choose, and E2 is the second value.
For E1, when P = $200, Q = ______. Over the price range $150 to $200,
Q/P = ______.
For E2, when P = $200, Q = ______. Over the price range $150 to $200,
Q/P = ______.
Changed Supply. This spreadsheet shows how the supply curve responds to a change in
any of the determinants of supply other the good’s own price. This corresponds to Exhibit
9 in the text.
10. Use the scroll bar to examine how the supply curve shifts. The initial supply curve
Y-intercept (called min. price in the worksheet) is 60. The new Y-intercept is
____________. What might cause this shift?
.
11. Shift the supply curve as you did in question number 10. Compare the quantity
supplied at the initial price as indicated by the initial and the new supply curve. Use
the scroll bar to choose a new price. The new price is _________. What happens to
the quantity supplied as indicated by the new supply curve?
Supply Shifters. This spreadsheet shows the determinants of supply other than the
good’s own price. These are factors that shift the supply curve. This corresponds to
Exhibit 9 in the text.
12. Use the scroll bars to determine how changes in the determinants of supply affect the
position of the supply curve.
a. An increased wage rate causes the supply curve to shift to the
_________(right/left); that is, it causes supply to _______(decrease/increase).
b. Improved technology (increase in the “technology” coefficient) causes the supply
curve to shift to the _________(right/left); that is, it causes supply to
_______(decrease/increase).
c. An decreased number of potential sellers (maybe due to regulation) causes the
supply curve to shift to the _________(right/left); that is, it causes supply to
_______(decrease/increase).
Refer to “GSSM3_market.xls” in answering the questions below.
Demand and Supply. This spreadsheet shows the demand curve and the supply curve
from the previous workbooks.
No question for this sheet.
Equilibrium. This spreadsheet shows how the demand and supply curves determine the
equilibrium price and quantity. If the price is above the equilibrium price, the quantity
that sellers are willing and able to provide exceeds the quantity that buyers are willing
and able to purchase. The resulting surplus will put downward pressure on the price,
pushing it back toward the equilibrium. Likewise, if the price falls below the equilibrium
price, the quantity demanded exceeds the quantity supplied. The resulting shortage
pushes the price back toward the equilibrium price. This sheet provides the point of
departure for the remainder of the sheets in the workbook.
No question for this sheet.
Disequilibrium. This spreadsheet shows quantity demanded and quantity supplied at
prices other than the equilibrium price. Demand and Supply are the same as in the
previous workbook, but the price is not the one that results in equality of the quantity
demanded and the quantity supplied.
13. Choose a price below the equilibrium price. If the price is $_____, then the quantity
demanded is ______ units while the quantity supplied is _______ units. Thus, this
price results in a shortage of _______units.
14. Choose a price above the equilibrium price. If the price is $_____, then the quantity
demanded is ______ units while the quantity supplied is _______ units. Thus, this
price results in a surplus of _______units.
Efficiency. The area between the horizontal price line and the demand curve is Consumer
Surplus. The area between the horizontal price line and the demand curve is Producer
Surplus. Market forces result in a price/quantity combination such that the sum of
Consumer Surplus and Producer Surplus is as large as possible. Other prices could result
in either more Consumer Surplus or more Producer Surplus, but the total would be
diminished.
15. Use the area formula, A = ½(base x height) to determine the values of Consumer
Surplus and Producer Surplus given the demand and supply curves in this sheet.
Consumer Surplus = $________. Producer Surplus = $_______.
Shifts. This spreadsheet shows how shifting the demand and/or the supply curves affects
the equilibrium price and quantity.
16. Increase demand by increasing the price at which the quantity demanded equals zero.
The demand curve shifts to the ________ (right/left). The new price is $_______. The
quantity demanded on the new demand curve is ______ units. The higher price causes
a movement along the unchanged supply curve such that the new quantity supplied is
______ units.
17. Reset the demand curve to its original position. Increase supply by decreasing the
price at which the quantity supplied equals zero. The supply curve shifts to the
________ (right/left). The new price is $_______. The quantity supplied on the new
supply curve is ______ units. The higher price causes a movement along the
unchanged demand curve such that the new quantity supplied is ______ units.
SupplyShifts_SR&LR. This sheet shows the effect of a shift in the supply curve in the
short run and in the long run. In the short run, the demand curve is relatively inelastic
(steeper). In the long run, buyers have more time to find substitutes for the good, and the
demand curve becomes more elastic (flatter).
18. a. Shift the supply curve to the right (increase supply). The equilibrium price in the
short run is _______, and the equilibrium quantity in the short run is _______.
The equilibrium price in the long run is _______, and the equilibrium quantity in
the long run is _______.
b. Shift the supply curve to the left (decrease supply). The equilibrium price in the
short run is _______, and the equilibrium quantity in the short run is _______.
The equilibrium price in the long run is _______, and the equilibrium quantity in
the long run is _______.
DemandShifts_SR&LR. This sheet shows the effect of a shift in the demand curve in
the short run and in the long run. In the short run, the supply curve is relatively inelastic
(steeper). In the long run, sellers have more time to adjust to the price change. Part of this
adjustment might be new sellers coming into the market if demand increases, and leaving
the market if demand decreases. Thus, the supply curve becomes more elastic (flatter)
with the passage of time.
19. a. Shift the demand curve to the right (increase demand). The equilibrium price in
the short run is _______, and the equilibrium quantity in the short run is _______.
The equilibrium price in the long run is _______, and the equilibrium quantity in
the long run is _______.
b. Shift the demand curve to the left (decrease demand). The equilibrium price in the
short run is _______, and the equilibrium quantity in the short run is _______.
The equilibrium price in the long run is _______, and the equilibrium quantity in
the long run is _______.
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