Chapter 4: 86 PART II HOW MARKETS WORK

1. A change in which of the following will NOT shift the demand curve for hamburgers?
a. the price of hot dogs
b. the price of hamburgers
c. the price of hamburger buns
d. the income of hamburger consumers

EXP: Price does not determine supply or demand of a good. Supply and demand determine the price of a good.
The price of hot dogs, a substitute affects the demand for hamburgers. The price of hamburger buns, a
compliment, affects the demand for hamburgers. Consumer income affects hamburger demand

2. An increase in ________ will cause a movement along a given demand curve, which is called a change in
________.
a. supply, demand
b. supply, quantity demanded
c. demand, supply
d. demand, quantity supplied

EXP: Refer to the figure below. We know that an increase in supply make it shift rightward. From the figure, we can
see that the supply has moved along the demand curve D1 and has shifted from S1 to S2. This has resulted in an
increase in the quantity demanded from Q1 to Q2.

3. Movie tickets and film streaming services are substitutes. If the price of film streaming increases,
what happens in the market for movie tickets?
a. The supply curve shifts to the left.
b. The supply curve shifts to the right.
c. The demand curve shifts to the left.
d. The demand curve shifts to the right.

EXP: Since movie tickets and DVDs are substitutes, an increase in the price of one results in an increase in demand
of the other. After this change in price, the purchase of movie tickets comes at a comparatively lower cost than
before.

4. The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a
________ equilibrium price.
a. supply, higher
b. supply, lower
c. demand, higher
d. demand, lower

EXP: The discovery of a large new reserve would cause the supply curve of gasoline to shift because the quantity
supplied would increase from the increase in availability, causing the equilibrium price to lower.
5. If the economy goes into a recession and incomes fall, what happens in the markets for
inferior goods?
a. Prices and quantities both rise.
b. Prices and quantities both fall.
c. Prices rise and quantities fall.
d. Prices fall and quantities rise.

EXP: During recession price of goods increase and people's purchasing power would decrease. Due to this, people
would demand less of the normal goods and switch their preference to inferior substitutes. Hence, the demand for
the inferior goods would increase and the demand curve would shift to the right. This rightward shift in the demand
curve will increase the equilibrium price. Thus, both the quantity demanded and the price of inferior goods increase
during a recession. Since, even at the increased price, inferior goods would be cheaper than the normal goods.
Hence, people would prefer inferior goods over normal goods.

6. Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the
equilibrium quantity of jelly sold?
a. an increase in the price of peanut better, a complement to jelly
b. an increase in the price of Marshmallow Fluff, a substitute for jelly
c. an increase in the price of grapes, an input into jelly
d. an increase in consumers’ incomes, as long as jelly is a normal good

EXP: A shifter for quantity supplied is input price and because grapes are an input for jelly, the increase of
grape prices would also increase the prices of jelly but decrease the quantity supplied, and therefor
sold. (grape prices / => jelly prices /=>\ quantity supplied)