Supply and Demand Review
1. It has been a very bad year for peaches and farmers predict that they will only be able to produce about 60% of their normal amount.
a. What will happen to supply?
b. What will happen to the price?
c. How will this affect the demand for peaches?
d. How will this affect the demand for apples?
2. The government increases the subsidies (benefits such as tax breaks, etc) for making wheat.
a. How will this affect the supply?
3. The price of ice cream has gone up. What will happen to the demand for ice cream cones? What kind of goods are these?
4. Your real income has greatly increased. Now instead of eating Top Ramen, you can eat steak! What kind of a good is Top Ramen? What kind of a good is steak?
5. The price of milk has increased by 25% due to a new tax on dairy products. What will happen to the demand for cereal? Graph this change on the graph below.
6. Government has passed a law to improve the safety of sport cars by requiring side airbags in addition to front airbags. How will this affect the production (supply) of sports cars? Graph this change on the graph below.
7. The price of grapefruit juice has increased by 20%. How will this affect the sale of orange juice?
8. List and explain two factors that affect the demand of a product. Meaning: even if the price of a product remains the same, why might the demand shift for that product?
9. Why are salt and gasoline price inelastic? Choose one and explain its inelasticity.
10. Your money income is the
a. Amount of goods and services you are able to purchase with your income
b. Number of dollars you receive per period
c. Amount of income you need to purchase goods and services
d. Number of dollars you are paid adjusted for changes in price
11. Which of the following products is most likely to have demand that is inelastic?
a. Particular type of hand lotion
b. Particular brand of aspirin
c. Particular brand of an automobile
d. Particular brand of medicine that cures arthritis
12. Products that can be used in place of each other are
a. Complements
b. Irreplaceable
c. Substitutes
d. Unnecessary
13. Market demand reflects the demand of
a. an individual consumer
b. all the consumers in the market
c. a single supplier
d. all suppliers in the market
14. When the owners of a firm expect prices to increase in the future they are likely to
a. supply more products in the present
b. not change the quantity of products they supply
c. supply fewer products at the present
d. supply fewer products in the future
15. Which of the following would cause the market supply curve for coffee to shift to the right?
a. A freeze in Brazil kills 20 percent of its coffee trees
b. Fertilizer is found to increase the yield per coffee tree by 20 percent
c. Drinking coffee is found to increase the risk of heart disease by 20 percent
d. Workers who pick coffee beans get a 20 percent raise
16. A restaurant has a total revenue of $12,000 each month. It has fixed costs of $8000 per month and variable cost of $3000 per month. What is this firm’s profit for the month?
a. $4000
b. $1000
c. $0 - it broke even
d. It lost $1000
17. The law of demand says:
18. The law of supply says:
19. The price of carrots increases by 5% and the price of broccoli remains the same. What will happen to the market demand for carrots? To the market demand for broccoli?
20. Why do newspaper businesses sell their newspapers in machines that allow you to take more than one at a time?
21. What do producers want to do more than anything?
22. What do consumers want to do more than anything?