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50 PART II: Supply and Demand I: How Markets Work
5. “Quantity Demanded” is a point on the demand curve. When there is a change in
price, quantity demanded changes. but demand itself does not change. Quantity
demanded is synonymous with consumption, or sales, or quantity sold.
6. “Supply” is the entire schedule or curve. Supply refers to the whole supply
schedule or supply curve, not just a point on the curve. For supply to shift, the
underlying factors that we hold constant in plotting a supply curve must change.
Changing the price simply means that we plot a new point on the existing supply
curve, representing a new quantity. Of course an increase in price encourages
suppliers to sell more; however, we call this response to higher price an increase in
quantity supplied. rather than an increase (or shift) in supply.
B. Multiple-Choice Questions
7. “Quantity Supplied” is a point on the supply curve. When there is a change in
price. the quantity supplied changes, even though the supply curve itself does not
shift. The quantity supplied at a particular price is the amount that sellers are
willing to sell at that price.
II. Self-Testing Challenges
A. True/False Questions
1 . A decrease in the price of soft drinks will increase their demand (shift the
curve to the right).
2. The supply of petroleum is fixed, because there is only a finite amount in the
ground.
3. At the equilibrium price, the amount that sellers are willing to provide is just
equal to the amount that buyers are willing to buy.
4, An improvement in technology tends to reduce the supply (shift it to the left).
5. An increase in raw materials prices tends to reduce the supply (shift it to the
left).
6. If sellers expect prices to rise in the future, this could cause prices to rise
today by encouraging sellers to reduce their current supply in anticipation of
a price hike.
7. A market refers to a physical location in which buyers and sellers interact.
8. A pnce below equilibrium results in excess supply.
9. Excess demand tends to drive price up until the market reaches equilibrium
price and quantity.
10. An increase in supply tends to increase equilibrium price and quantity.
11. An equal increase in both supply and demand tends to increase equilibrium
price and quantity.
CHPibR 4: The Market Forces of Supply and Demand 51
12. An increase in supply accompanied by a proportionate decrease in demand
tends to decrease equilibrium price while leaving equilibrium quantity
I
unchanged.
— I3 . The market supply curve is the vertical summation of all the individual
supply curves.
14. Assuming that pizza and beer are complements, a decrease in the price of
pizza would increase the demand for beer.
If pizza and hamburgers are substitutes, a decrease in the price of pizza would
increase the demand for hamburgers.
I . Which of the following would not increase the demand (shift the curve to the right)
for beer?
a. A new Health Canada study concludes that beer cures colds and skin disorders.
b. A price war results in beer selling for $,05/bottle.
c. Bars begin giving away spicy snacks to their customers.
d. The price of a substitute, hard liquor, rises.
e. There is an increase in the drinking-age population.
2. If buyers believe that the price of automobile antifreeze will rise soon, due to an
increase in the price of ethylene glycol, which is used to make antifreeze, the most
likely immediate result will be:
a. a decrease (shift to the left) in the demand for antifreeze, due to a change in
tastes.
b. a decrease (shift to the left) in the demand for antifreeze, due to a shift to
substitutes.
C. an increase in the quantity demanded, due to the change in supply.
d. an increase (shift to the right) in the demand for antifreeze, due to a change in
expectations.
e. no change in demand; only supply will change.
3. If a new technological breakthrough in genetic engineering makes it possible to
grow twice as much corn per hectare as had been possible in the past, the most
likely result will be:
a. a decrease (shift to the left) in the supply of corn, due to the increased costs
associated with the new technology
b. an increase (shift to the right) in the supply of corn, due to the reduced cost of
production.
c. an increase in the demand for corn, due to the greatly reduced price.
d. an increase in quantity supplied, due to the increased willingness to sell corn.
e. a shift from corn production to wheat production, using all of the extra land not
needed for corn production.