TUTORIAL 2

CHAPTER 4 (The Market Forces of Demand and Supply)

1. Which of the following is an example of a market?

A. the purchase and sale of fruit and vegetables in a shopping centre
B. the purchase and sale of software over the internet
C. the purchase and sale of illegal drugs in secret locations in a city
D. all of the above

2. If the price of a good changes, its demand curve shifts. True or False?

3. What could cause the demand curve for fish to shift?

A. an increase in the price of a substitute good for fish
B. a decrease in the price of a close substitute for fish
C. an increase in consumer incomes
D. all of the above

4. Suppose that a decrease in the price of X results in less of good Y sold. This would mean
that X and Y are:
A. complements
B. substitutes
C. unrelated
D. normal goods

5. Suppose that John receives a pay increase. We would expect John’s demand for:
A. normal goods to remain unchanged
B. inferior goods to remain unchanged
C. inferior goods to decrease
D. normal goods to decrease

6. Holding the non-price determinants of supply constant, a change in price would:

A. result in a change in supply
B. result in a movement along a stable supply curve
C. result in a shift of demand
D. have no effect on the quantity supplied

7. Wheat is an input used in the production of bread. If the price of wheat increases, but
nothing else changes, this will cause:
A. the demand for bread to increase
B. the supply of bread to decrease
C. the supply of bread to increase
D. the demand for bread to decrease
 8. Crude oil is an input used in the production of petrol. Suppose the price of crude oil
increases and at the same time there is an improvement in the technology used to refine
crude oil into petrol. What can you conclude about the supply of petrol?
A. the supply for petrol increases
B. the supply of petrol decreases
C. the supply of petrol does not change
D. We cannot predict with certainty what will happen to the supply of petrol

9. In 1989 an international trade ban was announced for ivory to be enacted as soon as
possible (the decision was indeed enacted in January 1990). If people expected the price of
ivory to rise after the ban, then their demand before the ban would:
A. increase
B. decrease
C. be unchanged
D. impossible to tell

10. Graphically, the market demand curve is:

A. the vertical sum of individual demand curves
B. steeper than any individual demand curve that comprises it
C. greater than the sum of the individual supply curves
D. the horizontal sum of individual demand curves

For the following questions, provide a short answer:

11. What is the difference between a change in demand and a change in quantity demanded?
Graph your answer.

12. Given the following information about three consumers’ monthly demand, construct a
market demand curve for potato chips. What would happen to demand if Ryan decided to
buy popcorn and not to buy chips? Show this change on your graph.

Price per bag ($) Ryan’s demand Rusty’s demand Regan’s demand
.25 7 10 6
.50 6 8 5
.75 5 6 4
1.00 4 4 3
1.25 3 2 2
1.50 2 0 1

13. Consider the following events and explain whether you think the good is normal or
inferior.
a. economic growth in China leads to higher incomes and increased imports of alligator
shoes. Show graphically the effect on market demand for alligator shoes.
b. John graduates from university, gets a job as an analyst and stops buying two-minute
noodles. Show graphically the effect on John’s demand for two-minute noodles.
c. a married couple buys less wine after the wife leaves the workforce to raise a family.
Show graphically the effect on the couple’s demand for wine.
 14. Consider the following scenarios. Illustrate and explain what would happen to the demand
of the relevant good, all other factors held constant.

a) Suppose that a consumer always eats strawberries only when combined with
blackberries (as an example, in a smoothie). Show graphically what happens to the
consumer’s demand for blackberries if the price of strawberries decreases.
b) Suppose that consumers see little difference between wheat and oats. Show graphically
what happens to the demand for oats if the price of wheat increases.

ADDITIONAL PRACTICE QUESTIONS

Note: For the following questions, correct answers are provided at the end of this section. If you
provide an incorrect answer, you have to truly understand why your answer is incorrect and why
the provided one is correct. Otherwise, no learning takes place. Keep in mind that simply
memorizing answers will not help pass the exams.

True or False Questions.

1. If tea and coffee are substitutes, a rise in the price of tea will cause a rise in the demand
for coffee

2. If the price of a good changes, its demand curve shifts.

3. The law of demand states that, other things being equal, when the price of a good rises,
the quantity demanded of the good falls.

4. If the demand for movies falls when income falls, then movies must be an inferior good.

5. The quantity supplied of a good or service is the amount that sellers are willing and able
to sell at a particular price.

6. The supply curve has a negative slope.

7. Increasing the number of sellers in a market is demonstrated by a movement along the

supply curve.

8. A supply curve slopes upward because, ceteris paribus, a higher price means a greater
quantity supplied.

9. A movement along a supply curve is called a change in supply, while a shift of the curve is
called a change in quantity supplied.
 Multiple Choice questions

10. Suppose that the demand for crocodile leather falls after a decrease in incomes. This would
mean that crocodile leather is:
A. a substitute good
B. a normal good
C. a complementary good
D. an inferior good

11. Suppose that scientists find evidence that proves that chocolate pudding increases hair
growth in men who are balding. We would expect to see:
A. no change in the demand for chocolate pudding
B. a decrease in the demand for chocolate pudding
C. an increase in the demand for chocolate pudding
D. a decrease in the supply of chocolate pudding

12. A leftward shift of a product supply curve might be caused by:

A. an improvement in the relevant technique of production
B. a decline in the prices of needed inputs
C. an increase in consumer incomes
D. some firms leaving an industry

A market is represented by the table below:

Quantities demanded:

Price of the John Lee Amy Jean

good
$0.50 36 25 12 5
1.00 30 22 8 4
2.00 25 20 3 3
3.00 20 19 1 2
4.00 10 18 0 1
5.00 5 17 0 0

13. Refer to the table above. If the price increases from $1 to $3:
A. the market demand increases by 22 units
B. the quantity demanded in the market decreases by 13 units
C. the quantity demanded in the market decreases by 22 units
D. the quantity demanded in the market decreases by 5 units
14. ‘Because of unseasonably cold weather, the supply of oranges has substantially decreased’.
This statement indicates that:
A. the amount of oranges that will be available at various prices has declined
B. the quantity demanded of oranges will decrease
C. consumers will be willing and able to buy fewer oranges at each possible price
D. the price of oranges will fall

Graph 4-4

15. Refer to Graph 4-4. On the graph, the shift from S to S1 could be caused by:
A. a decrease in the price of the good
B. an increase in cost of wages for the supplier
C. an increase in income
D. an improvement in technology

Short Answer Questions

16. For each of the following situations in the Australian crocodile market, determine whether
the quantity supplied changes, or whether the supply curve shifts and determine the
direction of the change.
a. the number of crocodile farms and ranches closes, ceteris paribus
b. Professor Webb develops an antibiotic that ensures more hatchlings survive on ranches
c. the cost of meat to feed crocodiles rises
d. Thailand announces it is going to increase the number of crocodile farms in the next five
years
 Answers
Answers to True/False and Multiple Choice Questions

1. ANS: T TOPICS: Prices of related goods

2. ANS: F TOPICS: Shifts in the demand curve

3 ANS: T TOPICS: What is competition?

4 ANS: F TOPICS: Income

5 ANS: T TOPICS: Supply

6 ANS: F TOPICS: The supply curve: The relationship between price and quantity supplied

7 ANS: F TOPICS: The supply curve: The relationship between price and

8 ANS: T TOPICS: The supply curve: The relationship between price and

9 ANS: F TOPICS: The supply curve: The relationship between price and

10 ANS: B TOPICS: Prices of related goods

11 ANS: C TOPICS: Number of buyers

12 ANS: D TOPICS: Shifts in the supply curve

13 ANS: C TOPICS: The demand curve: The relationship between price and quantity demanded

14 ANS: A TOPICS: Shifts in the supply curve

15 ANS: D TOPICS: The supply curve: The relationship between price and quantity supplied

Answers to Short Answer Questions

16. a. A reduction in the number of sellers will cause the supply curve to shift to the left.
b. This technological improvement will cause the supply curve to shift to the right.
c. An increase in the price of an input will cause the supply curve to shift to the left.
d. Australian producers will expect the price of crocodile products to fall in the future, so
the current supply curve will shift to the right.

TOPICS: The supply curve: The relationship between price and quantity supplied