Chapter 3 practice problems

Question 1

What is the difference between a change in demand and a change in quantity demanded?

Answer 1

A change in demand shifts the demand curve to the right or left (caused by factors other than price) and a change in quantity demanded moves up and down the along the demand curve (caused by a change in price).

Question 2

With respect to each of the following changes, identify whether the demand curve will shift rightward or leftward:
a) An increase in income (the good under consideration is a normal good)

Answer 2

rightward

Question 3

With respect to each of the following changes, identify whether the demand curve will shift rightward or leftward:
b) A rise in the price of a substitute good

Answer 3

rightward

Question 4

With respect to each of the following changes, identify whether the demand curve will shift rightward or leftward:
c) A fall in the price of a complementary good

Answer 4

rightward

Question 5

With respect to each of the following changes, identify whether the demand curve will shift rightward or leftward:
d) A fall in the number of buyers

Answer 5

leftward

Question 6

State what will happen to price when there is a surplus?

Answer 6

When we are in a surplus the price will fall until it reaches equilibrium.

Question 7

Does an increase in income always shift demand curves (for goods) to the right? Why or why not?

Answer 7

No, because an increase in income shifts the demand curve to the right only in the case of normal goods. The demand curve shifts to the left in case of the inferior goods. And the demand curve does not shift in the case of neutral goods.

Question 8

True or false? As the price of oranges rises, the demand for oranges falls, ceteris paribus. Explain your answer.

Answer 8

If the price of oranges rises, the quantity demanded of oranges falls, ceteris paribus. There is a big difference between the terms demand and quantity demanded. Quantity demanded refers to the amount of a good consumers are willing and able to buy at a particular price. Demand refers to the demand curve, depicting the various quantities demanded at all possible prices. While a number of factors may shift the demand curve, a good’s own price is not one of them. The only thing that a good’s own price can change is quantity demanded.

Question 9

For each of the following, show the effect of the change graphically and state what happens to equilibrium price and quantity.
a) There is a decrease in government restrictions for corn producers.

Answer 9

The equilibrium price will
(fall) and the equilibrium quantity will (rise) .

Question 10

For each of the following, show the effect of the change graphically and state what happens to equilibrium price and quantity.
b) Suppose frozen pizza is an inferior good and consumer income increases.

Answer 10

The equilibrium price will
(fall) and the equilibrium quantity will (fall) .

Question 11

For each of the following, show the effect of the change graphically and state what happens to equilibrium price and quantity.
c) There is an increase in the number of buyers of cars, and at the same time, subsidies to car producers are reduced. Assume demand and supply shift by equal amounts.

Answer 11

The equilibrium price will
(rise) and the equilibrium quantity traded will (stay the same) .

Question 12

For each of the following, show the effect of the change graphically and state what happens to equilibrium price and quantity.
d) There is an increase in the price of peanut butter (a complement to jelly), and at the same time, there is an increase in the price of strawberries (an input in production of jelly). Assume demand shifts by a larger amount than supply shifts. (Graph the market for jelly.)

Answer 12

The equilibrium price will
(fall) and the equilibrium quantity traded will (fall) .