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Module 1 Homework: Supply and Demand


1. A tariff is a tax on imported goods. Suppose the U.S. government implements a tariff on imported flat screen
televisions. Explain using supply and demand how this will affect the equilibrium price and quantity of flat
screen TVs?
The tariff is a per unit tax on the supplier. Therefore the supply of TV's will decrease, which will lead to a
decrease in the equilibrium quantity and an increase in the equilibrium price.

2. Consider the demand for hamburgers. If the price of a substitute good (for example, hot dogs) increases and
the price of a complement good (for example, hamburger buns) increases, can you tell for sure what will happen
to the demand for hamburgers? Why or why not? Illustrate your answer with a graph.
The increase in the price of the substitute will increase the demand for hamburgers. The increase in the price of
the compliment will decrease the price of hamburgers. Therefore, we do not know for sure what will happened
to the demand. It depends on which of these factors have the bigger impact.

3. Demand and supply in the market for cheddar cheese is illustrated in table above. Graph the data and find the
equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of
the new equilibrium, in each of the following situations:
a) The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at
every price.
The new equilibrium price is $3.6, and the equilibrium quantity is 620.
b) A new study says that eating cheese is good for your health, so that demand increases by 20% at every
price.
The new equilibrium price is $3.80, and the equilibrium quantity is 720

Author: Rice University; Source: Principle of Economics by OpenStax College; License: Createive Commons License 4.0

Name: _________________________________
Module 1 Homework: Supply and Demand
Price

Qd

Qs

$5

26

16

$6

24

18

$7

22

20

$8

21

21

$9

20

22

4. Supply and demand for movie tickets in a city are shown in table above. Graph demand and supply and
identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.
a) Three new nightclubs open. They offer decent bands and have no cover charge, but make their money by
selling food and drink. As a result, demand for movie tickets falls by six units at every price.
The new equilibrium price is $6 and the equilibrium quantity is 18.
b) The city eliminates a tax that it had been placing on all local entertainment businesses. The result is that
the quantity supplied of movies at any given price increases by 10%.
The new equilibrium price is $7 and the equilibrium quantity is 22.
5. The price of gasoline declines, and at the same time incomes rise. Analyze the impact of these two events on
the market for automobiles. Show graphically and explain.
Gas is a compliment to cars. Thus the decrease in the price of gas, increases the demand for cars. Higher
incomes increases the demand for cars (assuming cars are a normal good). Both of these factors increase the
demand for cars, which will cause the equilibrium price and quantity to rise.

Author: Rice University; Source: Principle of Economics by OpenStax College; License: Createive Commons License 4.0