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School
North Brunswick Twp High *
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Course
175
Subject
Economics
Date
Nov 24, 2024
Type
Pages
36
Uploaded by MinisterDanger1533
Section@
Supply
and
Demand
This
section
first
presents
the
two
sides
of
the
market,
demand
and
supply.
Once
the
supply
and
demand
sides
of
the
market
have
been
presented,
it
puts
them
together
to
show
how
the
supply
and
demand
model
can
be
used
to
understand
markets.
Variations
on
the
supply
and
demand
model,
such
as
the
market
for
loanable
funds,
aggregate
supply
and
aggregate
demand,
and
the
money
market
will
appear
throughout
the
remainder
of
the
course.
Featured
Model:
Supply
and
Demand
This
section
presents
the
supply
and
demand
model,
which
is
probably
the
best
known
and
most
important
economic
model.
The
basic
supply
and
demand
model
provides
the
framework
for
the
macroeconomic
models
presented
in
later
sections.
There
are
five
key
elements
in
this
model:
the
demand
curve,
the
supply
curve,
the
set
of
factors
that
cause
the
demand
curve
to
shift,
the
set
of
factors
that
cause
the
supply
curve
to
shift,
and
the
market
equilibrium
(the
price
and
quantity
associated
with
a
market
clearing).
The
supply
and
demand
model
is
used
to
determine
the
change
in
the
market
equilibrium
when
supply
and/or
demand
changes.
&ODULES
IN
THIS
SECTION
Module
5
Supply
and
Demand:
Introduction
and
Demand
Module
6
Supply
and
Demand:
Supply
Module
7
Supply
and
Demand:
Equilibrium
Module
8
Supply
and
Demand:
Price
Controls
(Ceilings
and
Floors)
Module
9
Supply
and
Demand:
Quantity
Controls
J
MODULE|
§
SUPPLY
AND
DEMAND:
INTRODUCTION
AND
DEMAND
This
module
introduces
the
supply
and
demand
model
and
presents
the
demand
side
of
the
model.
It
develops
the
concept
of
demand
and
presents
demand
schedules
(tables)
and
curves.
The
module
explains
the
difference
between
a
change
in
demand
and
a
change
in
quantity
demanded
and
presents
the
factors
that
will
shift
a
demand
curve
(i.e.
increase
or
decrease
demand).
Module
Objectives
Place
a
“\”
on
the
line
when
you
can
do
each
of
the
following:
Objective
#1.
Explain
what
a
competitive
market
is
and
how
it
is
described
by
the
supply
and
demand
model
Objective
#2.
Draw
a
demand
curve
and
interpret
its
meaning
Objective
#3.
Discuss
the
difference
between
movements
along
the
demand
curve
and
changes
in
demand
Objective
#4.
List
the
factors
that
shift
the
demand
curve
Section
2
|
Supply
and
Demand
27
Key
Terms
Competitive
market
Law
of
demand
Complements
Demand
schedule
Change
in
demand
Normal
good
Quantity
demanded
Movement
along
the
demand
curve
Inferior
good
Demand
curve
Substitutes
Practice
the
Model
In
the
space
below,
sketch
a
correctly
labeled
graph
of
demand
showing
the
effect
of
an
increase
in
the
number
of
buyers.
Be
sure
to
fully
label
your
graph
including
all
axes
and
curves.
Label
the
demand
curve
before
the
change
D;
and
the
demand
curve
after
the
change
D,.
Fill-ih-the-Blanks
Fill
in
the
blanks
to
complete
the
following
statements.
If
you
have
difficulties,
refer
to
the
key
terms...
e
A
competitive
market
is
one
in
which
there
are
1)
sellers
each
selling
a(n)
2)
good
or
service
and
individual
buyers
and
sellers
3)
(do/do
not)
have
an
effect
on
market
price.
e
Demand
is
the
relationship
between
the
amount
of
a
good
consumers
want
to
purchase
and
its
4)
.
According
to
the
law
of
demand,
people
purchase
more
of
a
good
or
service
when
the
price
is
5)
.
As
the
price
of
a
good
or
service
increases,
we
say
that
there
is
an
decrease
in
the
6)
of
a
good.
However,
whenever
something
changes
that
causes
consumers
to
want
less
at
any
price,
we
say
that
there
has
been
a
decrease
in
the
7)
for
the
good.
28
Module
5:
Supply
and
Demand:
Introduction
and
Demand
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
An
increase
in
demand
will
shift
the
demand
curve
to
the
8)
.
The
5
factors
that
will
cause
the
demand
curve
to
shift
are:
9)
,
,
and
Multiple-Choice
Questions
Circle
the
best
choice
to
answer
or
complete
the
following
questions
or
incomplete
statements.
For
additional
practice,
explain
why
one
or
more
incorrect
options
do
not
work.
10.
Ham
and
turkey
are
substitutes
for
many
people.
Holding
everything
else
constant,
if
the
price
of
ham
-
11.
decreases,
the
demand
for
turkey
will
shift
to
the
left.
turkey
will
shift
to
the
right.
ham
will
shift
to
the
left.
ham
will
shift
to
the
right.
turkey
will
not
change.
a0
T
e
For
an
inferior
good,
an
increase
in
consumer
income
will
a.
shift
the
demand
curve
to
the
right.
cause
a
movement
to
the
right
along
the
demand
curve.
shift
the
demand
curve
to
the
left.
cause
a
movement
to
the
left
along
the
demand
curve.
not
affect
demand.
e
e
T
Helpful
Tips
It
is
easy
to
confuse
a
change
in
demand
and
a
change
in
quantity
demanded.
A
good's
own
price
is
not
a
determinant
of
demand.
It
is
a
determinant
of
quantity
demanded.
Because
price
is
on
one
of
the
axes
(the
vertical
axis),
a
change
in
price
moves
along
a
demand
curve
to
a
new
quantity
demanded.
A
change
of
the
entire
demand
curve
occurs
when
one
of
the
determinants
of
demand
(which
are
not
on
either
axis)
changes.
When
a
demand
curve
shifts,
think
of
the
shift
as
a
shift
to
the
right
(an
increase
in
demand),
or
to
the
left
(a
decrease
in
demand).
Avoid
thinking
of
demand
curve
shifts
as
shifts
"up"
or
"down,”
as
this
can
lead
to
errors
when
working
with
supply
curves.
When
the
price
of
a
good
changes,
the
quantity
demanded
of
that
good
changes,
but
the
demand
for
its
complement
or
substitute
also
changes.
A
change
in
a
good’s
own
price
causes
a
movement
along
the
demand
curve,
because
its
own
price
is
on
the
vertical
axis.
The
price
of
a
related
good
is
a
determinant
of
demand
and
therefore
shifts
the
entire
demand
curve.
Module
Notes
When
economists
say
“an
increase
in
demand,”
they
mean
a
rightward
shift
of
the
demand
curve,
and
when
they
say
“a
decrease
in
demand,”
they
mean
a
leftward
shift
of
the
demand
curve—that
is,
when
they’re
being
careful.
When
you’re
doing
economic
analysis,
it’s
very
important
to
make
the
distinction
between
changes
in
the
quantity
demanded,
which
involve
movements
along
a
demand
curve,
and
shifts
of
the
demand
curve.
Section
2
|
Supply
and
Demand
29
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Sometimes
students
end
up
writing
something
like
this:
“If
demand
increases,
the
price
will
go
up,
but
that
will
lead
to
a
fall
in
demand,
which
pushes
the
price
down...”
and
then
go
around
in
circles.
If
you
make
a
clear
distinction
between
changes
in
demand,
which
mean
shifts
of
the
demand
curve,
and
changes
in
quantity
demanded,
which
are
caused
by
changes
in
price
of
the
good,
you
can
avoid
a
lot
of
confusion.
A
full
understanding
of
this
section
is
critical
for
your
study
of
economics.
The
model
of
supply
and
demand
is
used
repeatedly
in
a
variety
of
settings
throughout
this
course.
A
demand
curve
illustrates
the
relationship
between
the
price
of
the
good
and
the
quantity
demanded
at
each
specific
price.
In
drawing
the
demand
curve,
the
other
determinants
of
demand
are
held
constant;
this
constancy
is
referred
to
as
the
other
things
equal
(or
ceteris
paribus)
assumption.
In
the
examples
throughout
the
remainder
of
the
course,
we
typically
consider
a
single
change
in
a
situation
while
holding
the
other
variables
constant.
Any
time
you
think
“But
what
if...,”
be
careful
-
you
may
be
violating
this
assumption!
The
demand
for
a
good
is
affected
by
changes
in
these
factors:
income,
tastes,
expectations,
the
price
of
related
goods,
and
the
number
of
consumers.
You
will
need
to
remember
these
factors,
recognize
them
in
examples,
and
know
how
they
affect
the
demand
curve.
It
can
be
easier
to
understand
the
concepts
of
substitutes
and
complements
using
examples.
When
the
price
of
a
good
changes,
the
quantity
demanded
of
that
good
will
change,
but
the
demand
for
its
substitute
will
also
change.
For
instance,
if
the
price
of
hot
dogs
decreases,
people
will
buy
more
hot
dogs.
However,
people
will
need
to
buy
more
hot
dog
buns
to
go
with
those
hot
dogs
regardless
of the
current
price
of
buns,
so
the
demand
for
buns
will
increase.
Since
the
quantity
demanded
of
hot
dogs
increased
and
the
demand
for
buns
also
increased,
hot
dogs
and
buns
are
complements.
Whether
two
goods
are
substitutes
or
complements
(or
are
unrelated)
depends
on
individual
preferences.
When
considering
whether
a
good
is
a
complement
or
substitute,
focus
on
how
each
responds
to
changes
in
the
price
of
the
other,
rather
than
making
an
assumption
about
the
relationship
between
the
goods.
For
example,
you
may
think
apples
and
peanut
butter
are
complements
because
you
will
only
eat
apples
with
peanut
butter
on
them,
while
someone
else
thinks
they
are
substitutes
because
they
will
eat
an
apple
OR
have
peanut
butter
as
their
snack.
If
you
are
told
that
in
response
to
an
increase
in
the
price
of
apples,
the
demand
for
peanut
butter
increased,
you
know
that
apples
and
peanut
butter
are
substitutes.
'
It
can
also
be
easier
to
understand
questions
about
normal
and
inferior
goods
if
you
think
of
specific
examples.
But
don’t
let
the
terms
“normal”
and
“inferior”
mislead
you.
In
economics,
the
opposite
of
normal
is
inferior
(not
“abnormal”)
and
the
opposite
of
inferior
is
normal
(not
“superior”).
Whether
a
good
is
normal
or
inferior
for
a
particular
individual
depends
on
his
or
her
preferences.
A
good
that
is
normal
for
me
might
be
inferior
for
you!
A
normal
good
is
a
good
that
you
will
choose
to
buy
more
of
as
your
income
increases
(demand
shifts
to
the
right
as
income
increases).
For
example,
as
your
income
increases
you
may
take
more
vacations.
An
inferior
good
is
a
good
that
you
will
buy
less
of
as
your
income
increases
(demand
shifts
to
the
left as
income
increases).
For
example,
as
your
income
increases
you
may
buy
fewer
fast-food
restaurant
meals.
30
Module
5:
Supply
and
Demand:
Introduction
and
Demand
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
WORKSHEET
MODULE
5:
CHANGES
IN
DEMAND
For
each
of
the
following
scenarios;
(a)
Graph
the
new
situation
in
the
market
for
oranges
to
show
the
change
that
occurred.
(b)
Circle
where
indicated
whether
there
has
been
a
change
in
demand
or
a
change
in
quantity
demanded.
Explain
the
reason
for
the
change.
(c)
Be
sure
to
show
the
new
price
and
quantity
points
on
your
graph.
1.
The
price
of
tangerines
(a
substitute
for
oranges)
increases.
Price
What
changes:
D
or
Q4?7
Why?
D1
Quantity
2.
People
expect
that
an
approaching
hurricane
will
severely
damage
orange
groves,
making
oranges
unavailable
in
the
coming
months.
Price
What
changes:
D
or
Q.7
Why?
D1
Quantity
3.
People
enjoy
eating
chicken
a
I’orange
(which
uses
oranges).
The
price
of
chicken
decreases.
Price
What
changes: D
or
Q4?7
Why?
D1
Quantity
Section
2
|
Supply
and
Demand
31
MODULE
|6
SUPPLY
AND
DEMAND:
SUPPLY
This
module
presents
the
supply
side
of
the
market.
It
develops
the
concept
of
supply
and
presents
supply
schedules
(tables)
and
curves.
The
module
explains
the
difference
between
a
change
in
supply
and
a
change
in
quantity
supplied
and
presents
the
factors
that
will
shift
a
supply
curve
(i.e.
increase
or
decrease
supply).
Module
Objectives
Place
a
“\”
on
the
line
when
you
can
do
each
of
the
following:
___
Objective
#1.
Draw
a
supply
curve
and
interpret
its
meaning
_____
Objective
#2.
Discuss
the
difference
between
movements
along
the
supply
curve
and
changes
in
supply
Objective
#3.
List
the
factors
that
shift
the
supply
curve
Key
Terms
Quantity
supplied
Law
of
supply
Movement
along
the
supply
curve
Supply
schedule
Change
in
supply
Input
Supply
curve
Practice
the
Model
In
the
space
below,
sketch
a
correctly
labeled
graph
of
the
supply
of
gasoline
today
and
show
the
effect
if
producers
today
start
expecting
that
the
price
of
gasoline
will
increase.
Be
sure
to
label
axes
and
curves.
Label
the
supply
curve
before
the
change
S1
and
the
supply
curve
after
the
change
S>.
Fill
in
the
blanks
to
complete
the
following
statements.
If
you
have
difficulties,
refer
back
to
the
key
terms.
e
Supply
is
the
relationship
between
the
amount
of
a
good
producers
are
willing
to
sell
and
its
1)
.
As
the
price
of
a
good
or
service
increases,
we
say
that
there
is
an
increase
in
2)
.
However,
whenever
something
changes
that
causes
producers
to
sell
less
at
any
price,
we
say
that
there
has
been
a
decrease
in
3)
32
Module
6:
Supply
and
Demand:
Supply
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
Your preview ends here
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e
An
increase
in
supply
will
shift
the
supply
curve
to
the
4)
.
The
5
factors
that
will
cause
the
supply
curve
to
shift
are
5)
,
s
,
and
Multiple-Choice
Questions
Circle
the
best
choice
to
answer
or
complete
the
following
questions
or
incomplete
statements.
For
additional
practice,
explain
why
one
or
more
incorrect
options
do
not
work.
6.
Assume
that
research
and
development
result
in
the
discovery
of
a
new
technology
for
electricity
generation.
This
discovery
will
increase
the
supply
of
electricity.
b.
increase
the
quantity
supplied
of
electricity.
¢.
decrease
the
supply
of
electricity.
d
e
o
decrease
the
quantity
supplied
of
electricity.
have
no
effect
on
the
supply
of
electricity.
7.
An
increase
in
supply
causes
which
of
the
following?
the
supply
curve
to
shift
up
b.
the
supply
curve
to
shift
to
the
right
¢.
amovement
to
the
right
along
the
supply
curve
d
e
P
.
the
supply
curve
to
shift
to
the
left
a
movement
to
the
left
along
the
supply
curve
Helpful
Tips
e
Be
careful
when
you
shift
the
supply
curve.
Since
quantities
are
higher
as
you
move
to
the
right
along
the
horizontal
axis,
shifting
a
supply
curve
to
the
right
represents
an
increase
in
supply.
Since
quantities
are
lower
as
you
move
to
the
left
along
the
horizontal
axis,
shifting
a
supply
curve
to
the
left
is
a
decrease
in
supply.
Always
think
of
increases
and
decreases
as
shifts
to
the
right
and
left
(rather
than
up
or
down).
Module
Notes
A
supply
curve
illustrates
the
relationship
between
the
price
of
the
good
and
the
quantity
supplied
at
each
specific
price.
In
drawing
the
supply
curve,
the
other
determinants
of
supply
are
held
constant;
this
constancy
is
referred
to
as
the
other
things
equal
(or
ceteris
paribus)
assumption.
In
the
examples
throughout
the
remainder
of
the
course,
we
typically
consider
a
single
change
in
a
situation
while
holding
the
other
variables
constant.
Any
time
you
think
“But
what
if...,”
be
careful
-
you
may
be
violating
this
assumption!
The
supply
of
a
good
is
affected
by
changes
in
each
of the
following
factors:
input
prices,
the
price
of
related
goods,
technology,
expectations,
and
the
number
of
producers.
You
will
need
to
remember
these
factors,
recognize
them
in
examples,
and
know
how
they
affect
the
supply
curve.
Section
2
|
Supply
and
Demand
33
WORKSHEET
MODULE
6:
CHANGES
IN
SUPPLY
For
each
of
the
following
scenarios;
(a)
Graph
the
new
situation
in
the
market
for
oranges
to
show
the
change
that
occurred.
(b)
Circle
where
indicated
whether
there
has
been
a
change
in
demand
or
a
change
in
quantity
demanded.
Explain
the
reason
for
the
change.
(c)
Be
sure
to
show
the
new
price
and
quantity
points
on
your
graph.
1.
A
new,
more
efficient
orange
harvesting
machine
becomes
available.
Price
51
What
changes:
S
or
Q,?
Why?
Pl
a1
Quantity
2.
The
wages
of
orange
workers
increase.
Price
What
changes:
S
or
Os?
Why?
P1
a1
Quantity
3.
A
number
of
new
producers
of
oranges
enter
the
market.
Price
What
changes:
S
or
Q,?
Why?
P1
a
Quantity
34
Module
6:
Supply
and
Demand:
Supply
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
MODULE
|
7
SUPPLY
AND
DEMAND:
EQUILIBRIUM
This
module
defines
equilibrium,
shows
how
to
find
equilibrium
in
a
supply
and
demand
model,
and
explains
the
forces
that
bring
a
market
into
equilibrium.
Then,
it
uses
the
supply
and
demand
model
to
determine
how
changes
in
a
determinant
of
demand
or
supply
will
cause
a
change
in
the
equilibrium
price
and
quantity.
The
module
presents
how
to
use
the
supply
and
demand
model
to
analyze
real-world
and
hypothetical
changes.
Module
Objectives
Place
a
“\N”
on
the
line
when
you
can
do
each
of
the
following:
Objective
#1.
Explain
how
supply
and
demand
curves
determine
a
market’s
equilibrium
price
and
equilibrium
quantity
Objective
#2.
Describe
how
price
moves
the
market
back
to
an
equilibrium
in
the
case
of
a
shortage
or
surplus
Objective
#3.
Explain
how
equilibrium
price
and
quantity
are
affected
when
there
is
a
change
in
either
supply
or
demand
Objective
#4.
Explain
how
equilibrium
price
and
quantity
are
affected
when
there
is
a
simultaneous
change
in
both
supply
and
demand
Key
Terms
Equilibrium
Equilibrium
quantity
Shortage
Equilibrium
price
Surplus
Practice
the
Model
1.
Sketch
a
correctly
labeled
graph
showing
each
of
the
eight
situations
described
in
the
following
exercise.
Use
the
following
steps
to
complete
each
graph.
e
STEP
1)
Draw
a
supply
and
demand
graph
and
label
price
on
the
vertical
axis
and
quantity
on
the
horizontal
axis.
Label
the
initial
demand
curve
D;
and
the
initial
supply
curve
Si.
e
STEP
2)
Label
the
initial
equilibrium
price
P;
on
the
vertical
axis
and
the
initial
equilibrium
quantity
O;
on
the
horizontal
axis.
e
STEP
3)
Draw
the
new
supply
and/or
demand
curve,
labeling
the
new
curve(s)
D,
or
Sa.
e
STEP
4)
Show
the
new
equilibrium
price
labeled
P,
on
the
vertical
axis
and
the
equilibrium
quantity
labeled
O, on
the
horizontal
axis.
In
the
first
two
graphs,
some
of
these
steps
have
been
done
for
you
to
get
you
started.
1.
Demand
decreases
(Steps
1-3
have
been
done
for
|
5.
Demand
decreases
you)
Price
S1
Py
Dy
Quantity
Section
2
|
Supply
and
Demand
35
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2.
Supply
increases
(Steps
1
and
2
have
been done
6.
Supply
decreases
for
you)
Price
Sy
P
Dy
Q
Quantity
3.
Demand
increases
and
supply
increases
7.
Demand
increases
and
supply
decreases
4.
Demand
decreases
and
supply
increases
8.
Demand
decreases
and
supply
decreases
36
Module
7:
Supply
and
Demand:
Equilibrium
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
Fill-in-the-Blanks
Fill
in
the
blanks
to
complete
the
following
statements.
If
you
have
difficulties,
refer
to
the
key
terms...
e
When
only
demand
increases,
equilibrium
price
will
1)
and
equilibrium
quantity
will
2)
.
When
only
supply
increases,
equilibrium
price
will
3)
'
and
equilibrium
quantity
will
4)
.
Ifthereis
a
simultaneous
increase
in
demand
and
supply,
it
is
certain
that
equilibrium
5)
will
increase
but
it
is
impossible
to
determine
the
effect
on
equilibrium
6)
Multiple-Choice
Questions
Circle
the
best
choice
to
answer
or
complete
the
following
questions
or
incomplete
statements.
For
additional
practice,
explain
why
one
or
more
incorrect
options
do
not
work.
7.
On
a
supply
and
demand
graph,
equilibrium
price
is
shown
where
supply
and
demand
intersect.
where
supply
equals
demand.
.
,
on
the
horizontal
axis
below
where
supply
and
demand
intersect.
on
the
vertical
axis
to
the
left
of
where
supply
and
demand
intersect.
where
quantity
supplied
and
quantity
demanded
are
equal.
eRe
e
8.
At
the
current
price
of
peaches,
the
quantity
demanded
is
less
than
the
quantity
supplied.
There
is
a
of
peaches
and
price
will
;
shortage,
increase
surplus,
decrease
shortage,
decrease
surplus,
increase
shortage,
remain
the
same
e
Re
e
Helpful
Tips
e
Equilibrium
is
a
price
and
quantity
pair.
When
you
are
asked
to
label
equilibrium
price
and
quantity,
make
sure
you
label
the
equilibrium
price
on
the
vertical
axis
and
the
equilibrium
quantity
on
the
horizontal
axis.
For
example,
Graph
1
below
does
not
correctly
label
the
equilibrium
price
and
quantity
on
the
axes.
Graph
2
shows
the
correct
way
to
identify
equilibrium
price
and
quantity.
Price
S
Price
S
(Py,
Q1)
D
D
Quantity
Q,
Quantity
INCORRECT
CORRECT
GRAPH
1
GRAPH
2
Section
2
|
Supply
and
Demand
37
e
When
supply
and
demand
both
shift,
without
knowing
the
size
of
those
shifts
you
will
not
be
able
to
determine
both
the
new
equilibrium
price
and
the
new
equilibrium
quantity:
one
will
be
indeterminate.
For
instance,
suppose
supply
and
demand
both
increase.
Both
Graph
A
and
Graph
B
on
the
following
page
show
this.
However,
the
impact
on
equilibrium
price
is
different
in
each
graph!
Unless
we
know
that
one
curve
shifted
by
a
greater
amount,
we
cannot
tell
the
effect
on
price:
it
is
indeterminate.
Price
Price
P,
|
P
P
Py
Q
Q,
Quantity
Q
Q,
Quantity
Graph
A
Graph
B
Module
Notes
When
the
price
of
a
good
or
service
changes,
in
general,
we
can
say
that
this
reflects
a
change
in
either
supply
or
demand.
But
it
is
easy
to
get
confused
about
which
one.
A
helpful
clue
is
the
direction
of
change
in
quantity.
If
the
quantity
sold
changes
in
the
same
direction
as
the
price—for
example,
if
both
the
price
and
the
quantity
rise—this
suggests
that
the
demand
curve
has
shifted.
If
the
price
and
the
quantity
move
in
opposite
directions,
the
likely
cause
is
a
shift
of
the
supply
curve.
The
main
goal
of
this
section
is
to
learn
how
to
use
the
supply
and
demand
model
to
answer
questions
and
solve
problems.
Memorizing
definitions,
rules,
or
lists
won’t
get
you
very
far;
you
need
to
learn
and
practice
using
the
supply
and
demand
model.
Use
the
model
to
help
you
find
answers
to
questions
rather
than
guessing
the
answer
and
trying
to
make
the
model
fit
your
preconceived
notion.
Often
a
quick
sketch
of
a
demand
and
supply
curve
is
all
that
you
need
to
answer
questions
about
the
effect
of
a
change
in
the
market
on
the
equilibrium
price
or
equilibrium
quantity.
Practice
drawing
a
quick
representation
of
the
demand
and
supply
curves
as
you
do
problems,
recognizing
that
you
do
not
always
need
a
formal
graph
to
find
a
solution.
Use
these
sketches
during
your
exams!
38
Module
7:
Supply
and
Demand:
Equilibrium
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
Your preview ends here
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- Unlimited textbook solutions
- 24/7 expert homework help
WORKSHEET
MODULE
7:
GRAPHING
CHANGES
IN
EQUILIBRIUM
For
each
of
the
following,
draw
a
correctly
labeled
graph
of
the
market
for
pens
in
equilibrium.
Show
what
happens
to
equilibrium
price
and
quantity
in
the
market
in
each
of
the
following
scenarios.
Indicate
what
happens
to
S,
D,
P,
and
Q
(1
or
|
or
-
)
in
the
spaces
provided.
1.
The
price
of
pencils
increases.
2.
The
price
of
ink
decreases.
3.
The
price
of
paper
increases.
Section
2
|
Supply
and
Demand
39
MODULE|
8
SUPPLY
AND
DEMAND:
PRICE
CONTROLS
(CEILINGS
AND
FLOORS)
This
module
looks
at
government
intervention
to
affect
the
price
in
a
market.
Buyers
would
like
to
pay
less,
and
sometimes
they
can
make
a
strong
moral
or
political
case
that
they
should
pay
lower
prices.
Sellers
would
like
to
receive
a
higher
price,
and
sometimes
they
can
make
a
strong
moral
or
political
case
that
they
should
receive
higher
prices.
Buyers
and
sellers
make
strong
appeals
for
governments
to
intervene
in
markets.
When
a
government
intervenes
to
regulate
prices,
we
say
that
it
imposes
price
controls.
These
controls
take
the
form
either
of
a
price
ceiling
or
a
price
floor.
When
a
government
tries
to
legislate
prices,
there
are
predictable
side
effects,
which
are
presented
in
this
module.
Module
Objectives
Place
a
“\”
on
the
line
when
you
can
do
each
of
the
following:
Objective
#1.
Explain
the
workings
of
price
controls,
which
are
one
way
government
intervenes
in
markets
Objective
#2.
Describe
how
price
controls
can
create
problems
and
make
a
market
inefficient
Objective
#3.
Explain
why
economists
are
often
deeply
skeptical
of
attempts
to
intervene
in
markets
Objective
#4.
Identify
who
benefits
and
who
loses
from
price
controls
Key
Terms
Price
controls
Price
floor
Minimum
wage
Price
ceiling
Black
market
Price
floor
Practice
the
Model
1)
In
the
space
below,
sketch
a
correctly
labeled
graph
showing
an
effective
price
ceiling
on
a
market.
Be
sure
to
correctly
label
the
quantity
supplied,
quantity
demanded,
equilibrium
price,
price
ceiling,
and
any
surplus
or
shortage
that
exists.
Refer
to
Figure
8.2
in
your
textbook
as
a
guide.
40
Module
8:
Supply
and
Demand:
Price
Controls
(Ceilings
and
Floors)
Answers may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
2)
In
the
space
below,
sketch
a
correctly
labeled
graph
showing
an
effective
price
floor
on
a
market.
Be
sure
to
correctly
label
the
quantity
supplied,
quantity
demanded,
equilibrium
price,
price
floor,
and
any
surplus
or
shortage.
Refer
to
Figure
8.4
as
a
guide.
Fill-in-the-Blanks
Fill
in
the
blanks
to
complete
the
following
statements.
If
you
have
difficulties,
refer
to
the
key
terms.
One
way
the
government
may
try
to
affect
markets
is
to
use
price
controls
to
set
either
a
minimum
or
maximum
legal
price
in
a
market.
A
maximum
legal
price
is
called
a
price
1)
and
a
minimum
legal price
is
called
a
price
2)
To
be
effective,
a
price
ceiling
would
have
to
be
set
3)
the
equilibrium
price.
Tobe
effective,
a
price
floor
would
have
to
be
set
4)
the
equilibriumprice.
When
an
effective
price
ceiling
is
imposed
on
a
market,
a
5)
results;
when
an
effective
price
floor
is
imposed
on
a
market,
the
result
will
be
a
6)
Multiple-Choice
Questions
Circle
the
best
choice
to
answer
or
complete
the
following
questions
or
incomplete
statements.
For
additional
practice
explain
why
one
or
more
incorrect
options
do
not
work.
.
If
an
effective
price
floor
is
imposed
on
a
market,
the
market
price
can’t
adjust
upward,
resulting
in
a
surplus.
downward,
resulting
in
a
surplus.
upward,
resulting
in
a
shortage.
downward,
resulting
in
a
shortage.
upward,
resulting
in
a
new
equilibrium.
eaeTe
Which
of
the
following
is
NOT
an
inefficiency
caused
by
a
price
ceiling?
inefficient
allocation
to
consumers
inefficient
allocation
to
producers
wasted
resources
inefficiently
low
quantity
black
markets
e
Re
T
Section
2
|
Supply
and
Demand
41
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Helpful
Tips
e
Both
price
floors
and
price
ceilings
result
in
inefficiencies
and
both
sellers
and
buyers
are
hurt
by
them.
For
example,
buyers
are
hurt
by
a
price
floor
because
some
buyers
who
were
willing
and
able
to
pay
the
equilibrium
price
may
not
be
willing
or
able
to
pay
the
higher
price
floor
and
therefore
will
no
longer
purchase
the
good.
Because
there
are
fewer
buyers,
sellers
are
also
hurt
because
some
sellers
who
were
actually
willing
and
able
to
sell
the
good
at
the
lower
equilibrium
price
may
be
unable
to
sell
that
good
at
the
higher
price.
Similarly,
when
there
is
a
price
ceiling,
sellers
are
hurt
because
not
all
of
the
sellers
who
were
able
to
sell
their
good
at
the
equilibrium
price
can
still
participate
in
this
market.
As
a
result,
buyers
who
had
previously
been
willing
to
pay
a
higher
price
might
find
themselves
unable
to
purchase
the
good
at
a
lower
price
because
of
the
lower
quantity
supplied.
Module
Notes
A
price
ceiling
below
the
equilibrium
price
pushes
the
price
of
a
good
down.
A
price
floor
above
the
equilibrium
price
pushes
the
price
of
a
good
up.
So
it’s
easy
to
assume
that
the
effects
of
a
price
floor
are
the
opposite
of
the
effects
of
a
price
ceiling.
In
particular,
if
a
price
ceiling
reduces
the
quantity
of
a
good
bought
and
sold,
doesn’t
a
price
floor
increase
the
quantity?
No,
it
doesn’t.
In
fact,
both
floors
and
ceilings
reduce
the
quantity
bought
and
sold.
Why?
When
the
quantity
of
a
good
supplied
isn’t
equal
to
the
quantity
demanded,
the
quantity
sold
is
determined
by
the
“short
side”
of
the
market—whichever
quantity
is
less.
If
sellers
don’t
want
to
sell
as
much
as
buyers
want
to
buy,
it’s
the
sellers
who
determine
the
actual
quantity
sold,
because
buyers
can’t
force
unwilling
sellers
to sell.
If
buyers
don’t
want
to
buy
as
much
as
sellers
want
to
sell,
it’s
the
buyers
who
determine
the
actual
quantity
sold,
because
sellers
can’t
force
unwilling
buyers
to
buy.
A
floor
is
a
surface
that
you
stand
on
and
that
is
solid.
Use
this
vision
of
a
floor
to
remember
that
a
price
floor
is
the
lowest
price
that
can
be
charged
for
a
good. To
be
effective,
a
price
floor
must
be
set
at
a
price
that
is
greater
than
the
equilibrium
price.
Otherwise,
the
floor
will
not
prevent
the
market
from
going
to
equilibrium.
An
effective
price
floor
results
in
a
surplus
of
the
good,
because
at
high
prices,
producers want
to
sell
more
but
consumers
want
to
buy
less.
A
ceiling
is
a
surface
that
you
hope
is
solid
and
stays
above
your
head.
Use
this
visual
to
remember
that
a
price
ceiling
is
the
highest
price
that
can
be
charged
for
a
good.
To
be
effective,
a
price
ceiling
must
be
set
at
a
price
that
is
less
than
the
equilibrium
price.
Otherwise,
the
ceiling
will
not
prevent
the
market
from
going
to
equilibrium.
An
effective
price
ceiling
results
in
a
shortage
of
the
good
because
at
low
prices
consumers
want
to
buy
more
but
producers
don’t
want
to
sell
as
much.
42
Module
8:
Supply
and
Demand:
Price
Controls
(Ceilings
and
Floors)
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
WORKSHEET
MODULE
8:
PRICE
CONTROLS
Refer
to
the
graph
below
to
answer
the
following
questions.
Price
S
$20
\
/
$15
f-----------2
:
siol
1\
2B
Qs
200
Qo
Quantity
(in
thousands)
1.
What
are
the
equibrium
price,
quantity
demanded,
and
quantity
supplied
in
the
market
if
there
are
no
price
controls?
2.
A
price
of
$10
in
the
market
would
lead
to
a
(surplus
or
shortage)
equal
to
how
many
units?
3.
How
does
a
price
ceiling
of
$10
affect
the
quantity
demanded
and
quantity
supplied
in
the
market?
Explain.
4.
How
does
a
price
floor
of
$10
affect
the
quantity
demanded
and
quantity
supplied
in
the
market?
Explain.
Section
2
|
Supply
and
Demand
43
MODULE
|9
SUPPLY
AND
DEMAND:
QUANTITY
CONTROLS
This
module
continues
the
discussion
of
government
intervention
in
markets
by
looking
at
quantity
controls,
or
quotas.
The
total
amount
of
the
good
that
can
be
transacted
under
the
quantity
control
is
called
the
quota
limit.
Typically,
the
government
limits
quantity
in
a
market
by
issuing
licenses.
Module
Objectives
Place
a
“\”
on
the
line
when
you
can
do
each
of
the
following:
Objective
#1.
Explain
the
workings
of
quantity
controls,
another
way
government
intervenes
in
markets
Objective
#2.
Describe
how
quantity
controls
create
problems
and
can
make
a
market
inefficient
Objective
#3.
Explain
who
benefits
and
who
loses
from
quantity
controls
Key
Terms
Quantity
control
(Quota)
Supply
price
Quota
rent
License
Wedge
Dedaweight
loss
Demand
price
Practice
the
Model
Suppose
the
equilibrium
price
in
the
market
for
salmon
is
$4
per
pound,
the
equilibrium
quantity
is
20
pounds
of
salmon,
and
a
quota
of
10
pounds
of
salmon
is
imposed
on
the
market.
Draw
a
correctly
labeled
graph
of
the
salmon
market
showing
the
effect
of
the
quota.
Be
sure
to
label
the
demand
price
(Py),
the
supply
price
(Ps),
and
the
deadweight
loss
(DWL).
44
Module
9:
Supply
and
Demand:
Quantity
Controls
Answers
may
be
found
by
going
to
highschool.
bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
Your preview ends here
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Fill-in-the-Blanks
Fill
in
the
blanks
to
complete
the
following
statements.
If
you
have
difficulties,
refer
to
the
key
terms.
When
the
government
imposes
a
limit
on
the
quantity
sold,
it
is
called
a
1)
A
government
can
limit
the
number
of
goods
supplied
in
the
market
by
requiring
a
2)
which
grants
the
right
to
sell
a
good,
it
affects
not
only
the
amount
of
the
good
sold
in
the
market,
but
also
the
price.
When
the
government
imposes
a
quantity
control,
it
drives
a
3)
between
the
price
that
consumers
are
willing
to
pay
for
the
quantity
allowed
of
the
good
and
the
price
at
which
producers
are
willing
to
offer
that
quantity.
The
price
consumers
are
willing
to
pay
for
the
legal
market
quantity
is
called
the
4)
price
and
the
price
at
which
producers
are
willing
to
offer
the
legal
market
quantity
is
called
the
5)
price.
The
price
that
consumers
are
willing
to
pay
for
a
quota
is
higher
than
the
price
at
which
producers
are
willing
to
offer
it.
This
difference
is
known
as
the
quota
6)
Multiple-Choice
Questions
Circle
the
best
choice
to
answer
or
complete
the
following
questions
or
incomplete
statements.
For
additional
practice
explain
why
one
or
more
incorrect
options
do
not
work.
7.
Quantity
controls
lead
to
which
of
the
following?
a.
amarket
surplus
b.
a
market
shortage
c.
increased
efficiency
d.
deadweight
loss
e.
inefficiently
low
quality
8.
An
effective
quantity
control
will
have
what
effect
on
the
market?
a.
It
limits
the
price
that
suppliers
can
charge.
b.
It
limits
the
price
that
consumers
must
pay.
¢.
It
limits
the
amount
of
the
good
or
service
available.
d.
It
increases
the
quantity
of
the
good
sold.
e.
It
has
no
impact
on
the
market.
Helpful
Tips
Price
controls
and
quantity
controls
are
represented
differently
on
a
supply
and
demand
graph.
A
price
control
is
a
horizontal
line
at
the
controlled
price,
and
a
quantity
control
is
a
vertical
line
at
the
controlled
quantity.
Section
2
|
Supply
and
Demand
45
Module
Notes
In
this
module,
we
examine
what
happens
when
government
intervention
directly
restricts
the
quantity
of
a
good
or
service
available
in
the
market.
There
are
similarities
between
this
analysis
of
quantity
controls
and
our
previous
analysis
of
price
controls.
When
price
is
restricted
through
a
price
control,
we
draw
a
horizontal
line
on
our
supply
and
demand
graph,
at
the
level
of
the
price
ceiling
or
floor.
When
quantity
is
restricted,
we
draw
a
vertical
line
on
our
supply
and
demand
graph
at
the
maximum
quantity
permitted
under
the
restriction—the
quota
limit.
Note
that
we
focus
on
maximum
quantities
(quotas)
and
do
not
talk
about
minimum
quantities.
In
the
case
of
a
price
control,
the
restricted
price
creates
a
difference
between
the
quantity
demanded
and
the
quantity
supplied.
This
leads
to
shortages
or
surpluses.
In
the
case
of
a
quantity
control,
the
restriction creates
a
difference
between
the
supply
price
and
the
demand
price.
This
creates
a
wedge,
or
quota
rent.
While
the
terminology
used
to
analyze
quotas
may
be
less
familiar,
the
similarities
with
price
controls
can
help
you
understand
quantity
controls.
In
each
case,
government
intervention
leads
to
market
inefficiencies.
A
quota,
or
quantity
control,
is
a
policy
implemented
by
the
government
to
set
a
maximum
amount
of
the
good
or
service
that
can
be
sold
in
a
market.
A
quota
has
no
effect
if
it
is
set
at
a
level
greater
than
the
equilibrium
quantity;
to
be
effective,
a
quota
must
be
set
at
a
level
lower
than
the
equilibrium
quantity.
With
an
effective
quantity
restriction,
consumers
are
willing
to
pay
more
for
each
unit
of
the
good,
while
suppliers
are
willing
to
supply
the
good
for
less.
This
difference
is
referred
to
as
a
wedge.
This
wedge
corresponds
to
the
quota
rent
the
license
holder
of
the
good
receives
when
the
quantity
control
is
imposed
in
a
market.
46
Module
9:
Supply
and
Demand:
Quantity
Controls
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
WORKSHEET
MODULE
9:
QUANTITY
CONTROLS
Refer
to
the
graph
below
to
answer
the
following
questions.
Pri
I
0e
i
i
i
0
1000
LEOD
2,600
Quartity
1.
An
effective
quota
would
have
to
be
set
(above
or
below)
what
quantity
in
this
market?
Explain.
»
A
quota
of
1,000
would
result
in
a
demand
price
of
and
a
supply
price
of
3.
Calculate
the
quota
rent
if
a
quota
of
1,000
is
imposed
on
this
market.
Show
your
work.
4.
How
does
a
quota
of
1,000
affect
efficiency
in
this
market?
Explain.
Section
2
|
Supply
and
Demand
47
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PRACTICE
QUESTIONS
SECTION(2)
Draw
the
Featured
Graph:
Supply
and
Demand
Graphing
using
data
Graph
the
supply
and
demand
curves
using
the
data
in
the
table.
Show
equilibrium
price
and
quantity
on
the
axes.
Price
P
Qu
Qs
y
axis
label
0
8
0
2
6
6
4
4
12
Quantity
X
axis
label
Graphing
relationships
without
numbers
Graph
the
supply
and
demand
curves
and
show
equilibrium
price
and
quantity
on
the
axes.
y-axis
label
x-axis
label
Graphs
like
the
ones
you
drew
above
serve
as
the
starting
point
when
using
supply
and
demand
analysis
to
determine
the
effects
on
price
and
quantity
when
a
determinant
of
supply
or
demand
changes.
Always
start
your
analysis
with
one
of
these
“starting
point”
graphs.
Then
follow
these
steps:
1)
Determine
which
side
of
the
market
is
affected
—
supply
or
demand
—
using
the
lists
of
factors
that
affect
supply
and
demand
in
previous
modules.
Any
single
change
will
affect
supply
or
demand
—
not
both.
2)
Determine
whether
supply
or
demand
increases
or
decreases.
3)
Shift
the
supply
or
demand
curve
to
the
left
for
a
decrease
or
to
the
right
for
an
increase.
Draw
the
new
equilibrium
(using
the
new
curve)
to
find
your
answer.
Remember,
the
equilibrium
is
the
new
price
(on
the
vertical
axis)
and
the
new
quantity
(on
the
horizontal
axis)
using
the
new
curve.
Be
sure
to
clearly
label
the
new
price
and
the
new
quantity.
48
Section
2
—
Practice
and
Review
Questions
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
Your preview ends here
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Problems
1.
Draw
a
correctly
labeled
graph
showing
the
effect
on
equilibrium
price
and
equilibrium
quantity
in
the
market
for
oranges
when
each
of
the
following
(ceferis
paribus)
changes
occurs.
Use
the
steps
shown
in
Draw
the
Featured
Graph
above.
a.
There
is
a
freeze
in
Florida
that
kills
many
of
the
orange
groves.
y-axis
label
x-axis
label
b.
The
wages
of
orange
workers
decrease.
y-axis
label
x-axis
label
¢.
Research
finds
that
oranges
have
additional
health
benefits.
y-axis
label
x-axis
label
Section
2
|
Supply
and
Demand
49
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d.
The
price
of
tangerines
decreases.
y-axis
label
x-axis
label
2.
You
are
given
the
following
information
about
demand
in
the
competitive
market
for
bicycles.
Price
per
bicycle
Quantity
of
bicycles
demanded
per
week
$100
0
80
100
60
200
40
500
20
800
0
1,000
a.
Draw
the
demand
curve
that
reflects
this
demand
schedule.
—
y-axis
label
x-axis
label
b.
Suppose
the
price
is
initially
$40.
If
price
rises
by
$20,
what
happens
to
quantity
demanded?
50
Section
2
—
Practice
and
Review
Questions
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
Your preview ends here
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¢.
Suppose
the
price
is
initially
$40.
If
price
falls
by
$40,
what
happens
to
quantity
demanded?
3.
For
each
of
the
following
situations
in
the
table
below,
fill
in
the
missing
information.
Determine
whether
the
situation
causes
a
shift
or
a
movement
along
the
demand
curve;
then,
if
it
causes
a
shift,
determine
whether
the
demand
curve
shifts
to
the
right
or
to
the
left.
Situation
Specified
market
Movement
or
shift
Rightwarg
de
leftward
People’s
income
Market
for
exotic
increases
vacations
People’s
income
Market
for
goods
sold
decreases
in
secondhand
shops
Prlce
of
bicycles
Market
for
bicycles
increases
Price
of
tennis
balls
|
Market
for
tennis
increases
racquets
Price
of
movie
Market
for
popcorn
at
tickets
decreases
movie
theatres
Popularity
of
music-
|
1.
4
ot
for
music-
playing
device
;
5
:
playing
device
increases
Popularity
of
Market
for
brand-
branded
clothing
name
designer
items
decreases
clothing
Winter
clothing
is
expected
to
go
on
sale
next
month
Market
for
winter
clothing
Increase
in
urban
residents
Market
for
apartments
in
urban
areas
4.
The
following
graph
represents
the
supply
curve
for
the
production
of
widgets
in
Town
Center.
Supply
of
Widgets
Price
$60
50
40
30
20
P
10
—
~
o
0
20
40
60
80
100
120
Quantity
a.
Ata
price
of
$20,
how
many
widgets
are
producers
willing
to
supply?
b.
Ata
price
of
$40,
how
many
widgets
are
producers
willing
to
supply?
Section
2
|
Supply
and
Demand
51
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¢.
Suppose
there
are
five
widget
producers
in
Town
Center
and
the
price
of
widgets
is
$50.
If
each
producer
produces
the
same
number
of
widgets,
how
many
widgets
will
each
produce?
d.
Suppose
the
price
is
initially
$30
but
then
falls
to
$20.
What
is
the
change
in
quantity
supplied?
e.
Suppose
the
price
is
initially
$30
but
then
rises
to
$50.What
is
the
change
in
quantity
supplied?
f.
What
price
must
suppliers
receive
in
order
to
be
willing
to
supply
80
widgets?
g.
What
price
must
suppliers
receive
in
order
to
be
willing
to
supply
40
widgets?
h.
What
does
the
slope
of
a
supply
curve
imply
about
the
relationship
between
price
and
quantity
supplied?
5.
For
each
of
the
following
situations
in
the
table,
fill
in
the
missing
information.
First,
determine
whether
the
situation
causes
a
shift
or
a
movement
along
the
supply
curve;
then,
if
it
causes
a
shift,
determine
whether
the
supply
curve
shifts
to
the
right
or
to
the
left.
Rightward
or
Situation
Specified
market
Movement
or
shift
leftward
Labor
costs
for
air
travel
and
cruise
ships
increase
Prices
of
office
equipment
and
phone
Market
for
exotic
vacations
Market
for
call
center
service
rise
by
40%
services
Pnce
of
bigyeles
Market
for
bicycles
increases
Price
of
leather
boots
|
Market
for
beef
increases
products
Price
of
leather
boots
|
Market
for
leather
increases
belts
Ne““.
technglogy
fqr
Market
for
music-
music-playing
device
1o
devi
sevealed
playing
devices
Price
of
brand-name
Market
for
brand-
designer
clothing
name
designer
increases
clothing
Increase
in
number
of
|
Market
for
coffee
coffee
shop
owners
in
|
in
the
metro
the
metro
area
area
52
Section
2
—
Practice
and
Review
Questions
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
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6.
The
demand
and
supply
schedules
for
Healthy
Snacks,
Inc.,
is
provided
in
the
table
below.
Price
Quantity
demanded
Quantity
supplied
$0
1,000
0
10
800
125
20
600
275
30
400
400
40
200
550
50
0
675
a.
Sketch
the
demand
and
supply
curves
for
Healthy
Snacks,
Inc.
Don’t
worry
about
drawing
a
precise
graph.
Focus
on
drawing
the
underlying
relationships
from
the
table.
Your
graph
should
be
accurate
with
regard
to
x-intercepts
and
y-intercepts.
b.
What
are
the
equilibrium
price
and
quantity
in
this
market?
Show
these
on
your
graph,
with
equilibrium
price
on
the
vertical
axis
and
equilibrium
quantity
on
the
horizontal
axis.
¢.
Calculate
the
excess
demand
or
excess
supply
at
each
price
in
the
following
table.
Price
Excess
demand
or
supply?
Amount
of
excess
demand
or
supply
$0
10
20
30
40
50
d.
What
is
another
term
for
excess
demand?
e.
What
is
another
term
for
excess
supply?
Section
2
|
Supply
and
Demand
53
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7.
For
each
of
the
following
situations,
sketch
a
graph
of
the
initial
market
demand
(D1),
supply
(S)),
equilibrium
price
(P)
and
equilibrium
quantity
(Q:).
Then
sketch
any
changes
in
the
market
demand
(D2)
and/or
supply
(S2)
curves
and
indicate
the
new
equilibrium
price
(P2)
and
quantity
(0»).
a.
Assume
that
bicycles
and
gasoline
are
substitutes
and
the
price
of
gasoline
increases
significantly.
What
happens
in
the
market
for
bicycles?
Market
for
Bicycles
Price
(
Quantity
b.
The
price
of
gasoline
increases
by
40
percent.
What
happens
in
the
market
for
fuel-inefficient
SUVs?
Market
for
SUVs
Price
[
1
1
1
1
1
1
1
1
]
1
J
Quantity
¢.
New
technology
for
music-playing
is
developed.
What
happens
in
the
market
for
the
devices?
Market
for
Music-Playing
Devices
Price
[~
1
1
1
1
1
]
1
1
1
1
|
Quantity
54
Section
2
—
Practice
and
Review
Questions
Answers
may
be
found
by
going
to
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and
clicking
on
the
link
for
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d.
The
price
of
labor
decreases.
What
happens
in
the
market
for
fast-food
restaurants?
Price
[
Market
for
Fast-Food
Restaurants
1
1
1
1
1
1
]
1
J
Quantity
e.
Income
increases
and
good
X
is
a
normal
good.
What
happens
in
the
market
for
good
X?
Price
[
Market
for
Good
X
Quantity
f.
Income
increases
and
good
X
is
an
inferior
good.
What
happens
in
the
market
for
good
X?
Price
[0
Market
for
Good
X
1
1
1
1
1
1
1
1
]
Quantity
Section
2
|
Supply
and
Demand
55
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8.
Use
this
graph
to
answer
the
following
questions.
Price
e
e
ceccoccodoeoee
0,0
0
Quantity
&
f=)
o
a.
Identify
the
equilibrium
price
and
the
equilibrium
quantity.
b.
Suppose
a
price
floor
of P;
is
implemented
by
the
government
in
this
market.
Describe
what
will
happen
to
the
price
and
quantity
once
this
price
floor
is
implemented.
¢.
Suppose
a
price
floor
of
P
is
implemented
by
the
government
in
this
market.
Describe
what
will
happen
to
the
price
and
quantity
once
this
price
floor
is
implemented.
d.
What
must
be
true
about
a
price
floor
in
a
market
for
a
good
or
service
in
order
for
that
price
floor
to
be
effective?
e.
You
are
told
that
an
effective
price
floor
has
been
implemented
in
this
market
and
that
the
resulting
surplus
is
greater
than
Q4
-
Q1.
What
do
you
know
about
the
level
of
this
price
floor?
56
Section
2
—
Practice
and
Review
Questions
Answers
may
be
found
by
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to
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and
clicking
on
the
link
for
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9.
10.
Use
this
graph
to
answer
the
following
questions.
Supply
Demand
e
e
e
e
e
o
eoeogeofoooeee
G0
0
0
O
Quantity
®
Identify
the
equilibrium
price
and
the
equilibrium
quantity.
b.
Suppose
a
price
ceiling
of
P,
is
implemented
by
the
government
in
this
market.
Describe
what
will
happen
to
the
price
and
quantity
once
this
price
ceiling
is
implemented.
¢.
Would
both
P,
and
P;
be
effective
price
ceilings?
Explain.
d.
Suppose
a
price
ceiling
of
P3
is
imposed
on
this
market.
What
quantity
will
be
exchanged?
e.
You
are
told
that
an
effective
price
ceiling
has
been
implemented
in
this
market
and
that
the
resultant
shortage
is
smaller
than
Qs
-
Q.
What
do
you
know
about
the
level
of
this
price
ceiling?
Consider
the
market
for
housing
in
Metropolitan
City,
where
all
housing
units
are
exactly
the
same.
Currently
the
equilibrium
price
of
housing
is
$2,000
a
month
and
local
residents
consume
1,500
units
of
housing.
The
local
residents
argue
that
housing
is
too
expensive
and
as
a
result
an
effective
price
ceiling
is
implemented.
When
the
price
ceiling
is
implemented
by
the
local
government
council,
only
1,200
units
of
housing
are
supplied.
Is
this
an
efficient
level
of
housing
for
Metropolitan
City?
Explain.
To
support
your
answer,
provide
two
sketches:
in
the
first
sketch,
indicate
equilibrium
quantity
and
price;
in
the
second
sketch,
indicate
the
price
ceiling
and
the
quantity
provided
by
the
market
with
the
ceiling
in
place.
Is
the
price
consumers
are
willing
to
pay
for
the
last
unit
equal
to
the
price
suppliers
must
receive
to
supply
the
last
unit?
Explain.
Section
2
|
Supply
and
Demand
57
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11.
The
market
for
taxi
rides
in
Metropolia
this
week
is
described
in
the
following
table.
Assume
that
all
taxi
rides
are
the
same
in
Metropolia.
Price
of
taxi
rides
Quantity
of
taxi
rides
Quanti?y
of
taxi
rides
demanded
per
week
supplied
per
week
$1
200
40
2
180
60
3
160
80
4
140
100
5
120
120
6
100
140
7
80
160
8
60
180
9
40
200
10
20
220
a.
What
is
the
equilibrium
price
and
quantity
of
taxi
rides
in
Metropolia
per
week?
Suppose
the
government
of
Metropolia
institutes
a
medallion
system
that
limits
the
number
of
taxi
rides
available
in
Metropolia
per
week
to
80
taxi
rides.
b.
At
what
price
will
consumers
want
to
purchase
80
taxi
rides
per
week?
What
is
this
price
called?
c.
At
what
price
will
suppliers
be
willing
to
supply
80
taxi
rides
per
week?
What
is
this
price
called?
d.
What
price
will
a
taxi
medallion
rent
for
in
this
market?
Explain
your
answer.
e.
Draw
a
graph
of
the
taxi
ride
market
in
Metropolia.
On
this
graph,
indicate
the
quota
limit,
the
demand
price,
the
supply
price,
and
the
medallion’s
rental
price.
f.
What
is
the
total
value
of
the
taxi
medallions
per
week
in
Metropolia?
58
Section
2
—
Practice
and
Review
Questions
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
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Review
Questions
Circle
your
answer
to
the
following
questions.
1.
Competitive
markets
are
characterized
as
having
gRETPE
many
buyers
and
a
single
seller.
many
buyers
and
a
few
sellers.
many
buyers
and
many
sellers.
a
few
buyers
and
many
sellers.
one
buyer
and
many
sellers.
Sue
goes
to
the
store
to
purchase
a
bottle
of
shampoo.
When
she
gets
to
the
store,
she
discovers
that
her
brand
of
shampoo
is
on
sale
for
$4
a
bottle.
According
to
the
law
of
demand,
we
can
expect
that
pae
T
Sue
will
purchase
one
bottle
of
shampoo.
Sue
will
not
purchase
the
shampoo.
Sue
will
likely
purchase
more
than
one
bottle
of
shampoo.
Sue
will
substitute
for
her
usual
brand
of
shampoo
with
an
alternative
brand.
Sue
will
sell
the
shampoo
she
has
at
home.
Consider
the
market
for
mangos.
Suppose
researchers
discover
that
eating
mangos
generates
large
health
benefits.
Which
of
the
following
statements
is
true?
This
discovery
will
e
Re
s
not
affect
the
market
for
mangos.
cause
the
demand
for
mangos
to
shift
to
the
right.
cause
the
price
of
mangos
to
decrease
due
to
a
movement
along
the
demand
curve.
cause
a
movement
along
the
demand
curve
for
mangos.
cause
the
supply
of
mangos
to
decrease.
Consider
the
demand
curve
for
automobiles.
An
increase
in
the
price
of
automobiles
due
to
a
shift
in
the
supply
curve
will
Pae
Ty
cause
a
movement
to
the
right
along
the
demand
curve
for
automobiles.
result
in
a
decrease
in
the
demand
for
automobiles.
have
no
effect
on
the
quantity
of
automobiles
demanded
since
the
change
was
in
supply.
cause
the
quantity
supplied
of
automobiles
to
increase.
cause
a
movement
to
the
left
along
the
demand
curve
for
automobiles.
Assume
that
ham
and
turkey
are
substitutes.
If
the
price
of
ham
decreases,
then
the
demand
for
FRETP
turkey
will
shift
to
the
left.
turkey
will
shift
to
the
right.
ham
will
shift
to
the
left.
ham
will
shift
to
the
right.
turkey
will
not
change.
Consider
two
goods:
good
X and
good
Y.
Holding
everything
else
constant,
the
price
of
good
Y
increases
and
the
demand
for
good
X
decreases.
Good
X and
good
Y
are
definitely
eae
Ty
complements.
substitutes.
not
related
to
one
another.
Cannot
be
determined
normal
goods.
Section
2
|
Supply
and
Demand
59
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7.
If
the
price
of the
good
increases,
it
results
in
a
movement
along
a
supply
curve
resulting
in
a
greater
FREFE
supply
of
the
good.
quantity
supplied.
supply.
demand.
‘equilibrium.
8.
Research
and
development
result
in
the
discovery
of
a
new
technology
for
electricity
generation.
Holding
everything
else
constant,
this
discovery
will
9.
10.
11.
12.
cReFE
increase
the
supply
of
electricity.
increase
the
quantity
supplied
of
electricity.
decrease
the
supply
of
electricity.
decrease
the
quantity
supplied
of
electricity.
have
no
impact
on
the
market
for
electricity.
The
sawmill
industry
expects
lumber
prices
to
rise
next
year
due
to
growing
demand
for
the
construction
of
new
homes.
Holding
everything
else
constant,
this
expectation
will
shift
pRETS
In
a.
b.
c.
d
e
the
supply
curve
for
lumber
this
year
to
the
left.
the
supply
curve
for
lumber
this
year
to
the
right.
the
supply
curve
for
lumber
next
year
to
the
left.
the
supply
curve
for
lumber
next
year
to
the
right.
the
demand
curve
for
lumber
this
year
to
the
left.
an
equilibrium
in
a
competitive
market
for
a
good,
price
has
adjusted
so
that
the
quantity
demanded
is
equal
to
the
quantity
supplied
at
that
price.
demanded
is
equal
to
the
quantity
supplied
at
all
possible
prices.
supplied
is
greater
than
the
quantity
demanded
at
that
price.
demanded
is
greater
than
the
quantity
supplied
at
that
price.
demanded
is
equal
to
zero.
Consumers
in
Mayville
consider
houses
and
apartments
to
be
substitutes.
There
is
an
increase
in
the
price
of
houses
in
Mayville
at
the
same
time
that
three
new
apartment
buildings
are
opened.
In
the
market
for
apartments
in
Mayville,
the
equilibrium
e
aeTs
price
will
rise
relative
to
its
level
before
these
two
events.
price
will
fall
relative
to
its
level
before
these
two
events.
quantity
will
rise
relative
to
its
level
before
these
two
events.
quantity
will
fall
relative
to
its
level
before
these
two
events.
price
will
rise,
but
the
equilibrium
quantity
will
be
unchanged.
An
effective
price
floor
will
have
what
effect
on
the
price
of
the
product
and
the
quantity
sold?
R
Te
Effect
on
the
price
of
the
product
Effect
on
the
quantity
sold
decreases
increases
increases
increases
decreases
decreases
increases
no
impact
increases
decreases
60
Section
2
—
Practice
and
Review
Questions
Answers may
be
found
by
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to
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13.
A
minimum
wage
that
is
higher
than
the
market
equilibrium
wage
will
have
what
effect
on
the
wage
and
quantity
of
workers
hired?
e
e
T
Wage
Quantity
of
workers
hired
increase
increase
increase
decrease
decrease
increase
decrease
decrease
increase
stay
the
same
Use
the
information
in
the
table
below
to
answer
questions
14
and
15.
14.
15.
16.
17.
Price
Quantity
demanded
Quantity
supplied
$20
200
0
40
150
50
60
100
100
80
50
150
100
0
200
Suppose
a
price
floor
of
$40
is
implemented
in
this
market.
This
results
in
oo
T
an
excess
demand
of
100
units.
an
excess
supply
of
100
units.
no
effect
in
this
market,
since
the
price
floor
is
set
below
the
equilibrium
price.
no
effect
in
this
market,
since
the
price
floor
is
set
above
the
equilibrium
price.
an
excess
demand
of
40
units.
Suppose
a
price
ceiling
of
$40
is
implemented
in
this
market.
This
results
in
O
an
excess
demand
of
100
units.
an
excess
supply
of
100
units.
no
effect
in
this
market,
since
the
price
ceiling
is
set
below
the
equilibrium
price.
a
temporary
shortage
of
the
good
while
prices
rise.
a
reduction
in
the
demand
for
this
good.
Black
market
or
illegal
activities
increase
with
the
imposition
of
price
controls
in
markets.
Black
markets
PREFP
improve
the
situation
of
all
participants
in
the
price-controlled
market.
worsen
the
situation
for
those
people
who
obey
the
rules
imposed
by
the
government.
have
little
or
no
real
impact
in
price-controlled
markets.
create
greater
respect
in
society
for
the
need
to
obey
all
laws.
do
not
exist
because
they
are
illegal.
An
effective
quantity
control
ae
s
limits
the
price
that
suppliers
can
charge
for
the
good
or
service
in
the
regulated
market.
limits
the
price
that
demanders
must
pay
for
the
good
or
service
in
the
regulated
market.
limits
the
amount
of
the
good
or
service
available
in
the
regulated
market.
increases
the
quantity
of
the
good
in
the
regulated
market
to
a
quantity
above
equilibrium.
limits
the
price
that
suppliers
can
charge
for
the
good
or
service
in
the
regulated
market
without
impacting
the
quantity
exchanged.
Section
2
|
Supply
and
Demand
61
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18.
A
quota
limit
imposed
on
a
market
restricts
the
amount
of
the
good
available
in
that
market.
results
in
a
payment
being
made
by
the
government
to
the
license
holder.
places
a
lower
limit
on
the
amount
of
the
good
provided
in
the
regulated
market.
places
an
upper
limit
on
the
price
of
the
good
provided
in
the
regulated
market.
restricts
the
amount
of
the
good
available
in
the
market
without
having
any
impact
on
the
price.
eRe
TP
19.
Which
of
the
following
statements
is
true of
a
quota?
a.
It
places
a
wedge
between
the
demand
price
and
the
supply
price.
b.
It
results
in
efficiency
gains
because
quotas
allow
fewer
goods
to
be
sold,
while
price
controls
do
not.
c.
Itresults
in
efficiency
gains
because
quotas
only
restrict
transactions
that
are
not
mutually
beneficial.
d.
A
price
control
results
in
efficiency
gains
because
price
controls
allow
fewer
goods
to
be
sold,
while
quotas
do
not.
e.
Itrestricts
the
sale
of
goods
to
those
who
value
a
good
the
least.
20.
Quantity
controls
provide
an
incentive
to
engage
in
illegal
activities.
result
in
overproduction
of
the
good
in
the
market
with
the
quota
limit.
result
in
a
more
efficient
outcome
than
the
market
outcome.
enable
sellers
to
sell
more
of
a
good
regardless
of
the
market
price.
enable
buyers
to
buy
more
of
a
good
regardless
of
the
market
price.
eae
oy
62
Section
2
—
Practice
and
Review
Questions
Answers
may
be
found
by
going
to
highschool.bfwpub.com/apkrugman3e
and
clicking
on
the
link
for
the
student
site.
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