Chapter 3 - Answers to Study Exercises

Question 1
a) supply; left; decrease; supply
b) demand; right; increase; demand
c) demand; right; increase; demand
d) supply; left; decrease; supply
e) supply; left; decrease; supply
f) demand; left; decrease; demand

Question 2
a) negatively
b) positively
c) supply; demand
d) equals
e) rise; equilibrium quantity
f) rise; equilibrium quantity

Question 3
a) decrease; quantity demanded
b) to the right; increase
c) increased; decreased
d) quantity demanded
e) The appropriate diagram is shown below.
Question 4
a) Decrease in quantity demanded of fish (movement up along the demand curve due to the
resulting increase in price)
b) Decrease in quantity demanded of fish (movement up along the demand curve after the
price rises)
c) Demand for fish decreases (demand curve shifts to the left)
d) Demand for fish decreases (demand curve shifts to the left)
e) Demand for fish decreases (demand curve shifts to the left)
f) Demand for fish increases (demand curve shifts to the right)

Question 7
a) The reduction in the size of the peach harvest due to bad weather is a decrease in the supply
of peaches – a leftward shift of the supply curve. (For a given demand curve, this leads to an
increase in equilibrium price.)
b) An increase in income leads to an increase in the demand for all normal goods. Assuming
restaurant meals are a normal good, there will be a rightward shift in the demand curve for
restaurant meals. For a given upward-sloping supply curve, this shock leads to an increase in
the equilibrium price and quantity of restaurant meals. This is an increase in the quantity
supplied of restaurant meals (caused by the price increase).
c) Technological improvements in electronic publishing reduce the cost of producing e-books
and therefore cause an increase in supply – a rightward shift of the supply curve for e-books.
(This causes a fall in the equilibrium price and an increase in equilibrium quantity.)
d) Greater awareness of the benefits of a low-carb diet lead to a reduction in demand for bread
(and other high-carb food items) and thus, for a given supply curve, to a reduction in the
equilibrium price and quantity of bread. As price falls, there is a reduction in the quantity of
bread supplied.