Chapter 4 The Market Forces of Supply and Demand

SOLUTIONS TO TEXTBOOK PROBLEMS

Quick Quizzes
1. What is a market?• What are the characteristics of a competitive market?
A market is a group of buyers (who determine demand) and a group of sellers (who determine
supply) of a particular good or service. A competitive market is one in which there are many
buyers and many sellers of an identical product so that each has a negligible impact on the
market price.
2. Make up an example of a monthly demand schedule for pizza, and graph the implied demand
curve.• Give an example of something that would shift this demand curve.• Would a change in
the price of pizza shift this demand curve?
Here’s an example of a demand schedule for pizza:

Price of Pizza Slice Number of Pizza Slices Demanded

$ 0.00 10

0.25 9

0.50 8

0.75 7

1.00 6

1.25 5

1.50 4

1.75 3

2.00 2

2.25 1

2.50 0

The demand curve is graphed in Figure 1.

Figure 1
Examples of things that would shift the demand curve include changes in income, prices of
related goods like soda or hot dogs, tastes, expectations about future income or prices, and the
number of buyers.
A change in the price of pizza would not shift this demand curve; it would only lead us to move
from one point to another along the same demand curve.
 3. On the appropriate diagram, show what happens to the market for pizza if the price of
tomatoes rises.• On a separate diagram, show what happens to the market for pizza if the price of
hamburgers falls.
If the price of tomatoes rises, the supply curve for pizza shifts to the left because of the increased
price of an input into pizza production, but there is no effect on demand. The shift to the left of
the supply curve causes the equilibrium price to rise and the equilibrium quantity to decline, as
Figure 2 shows.

Figure 2
If the price of hamburgers falls, the demand curve for pizza shifts to the left because the lower
price of hamburgers will lead consumers to buy more hamburgers and less pizza, but there is no
effect on supply. The shift to the left of the demand curve causes the equilibrium price to fall and
the equilibrium quantity to decline, as Figure 3 shows.
Figure 3
Questions for Review
1. What is a competitive market? Briefly describe the types of markets other than perfectly
competitive markets.
A competitive market is a market in which there are many buyers and many sellers of an
identical product so that each has a negligible impact on the market price. Other types of markets
include monopoly, in which there is only one seller, markets in which there are a few sellers that
do not always compete aggressively, and markets in which there are many sellers, each offering
a slightly different product.
2. What are the demand schedule and the demand curve, and how are they related? Why
does the demand curve slope downward?
The demand schedule is a table that shows the relationship between the price of a good and the
quantity demanded. The demand curve is the downward sloping line relating price and quantity
demanded. The demand schedule and demand curve are related because the demand curve is
simply a graph showing the points in the demand schedule.
The demand curve slopes downward because of the law of demand—other things equal, when
the price of a good rises, the quantity demanded of the good falls. People buy less of a good
when its price rises, both because they cannot afford to buy as much and because they switch to
purchasing other goods.
3. Does a change in consumers’ tastes lead to a movement along the demand curve or a
shift in the demand curve? Does a change in price lead to a movement along the demand
curve or a shift in the demand curve?
A change in consumers’ tastes leads to a shift in the demand curve. A change in price leads to a
movement along the demand curve.
4. Popeye’s income declines and, as a result, he buys more spinach. Is spinach an inferior or
a normal good? What happens to Popeye’s demand curve for spinach?
Since Popeye buys more spinach when his income falls, spinach is an inferior good for him.
Since he buys more spinach but the price of spinach is unchanged, his demand curve for spinach
shifts out as a result of the decrease in his income.
5. What are the supply schedule and the supply curve, and how are they related? Why does
the supply curve slope upward?
A supply schedule is a table showing the relationship between the price of a good and the
quantity a producer is willing and able to supply. The supply curve is the upward sloping line
relating price and quantity supplied. The supply schedule and the supply curve are related
because the supply curve is simply a graph showing the points in the supply schedule.
The supply curve slopes upward because when the price is high, suppliers’ profits increase, so
they supply more output to the market. The result is the law of supply—other things equal, when
the price of a good rises, the quantity supplied of the good also rises.
6. Does a change in producers’ technology lead to a movement along the supply curve or a
shift in the supply curve? Does a change in price lead to a movement along the supply
curve or a shift in the supply curve?
A change in producers’ technology leads to a shift in the supply curve. A change in price leads to
a movement along the supply curve.
7. Define the equilibrium of a market. Describe the forces that move a market toward its
equilibrium.
The equilibrium of a market is the point at which the quantity demanded is equal to the quantity
supplied. If the price is above the equilibrium price, sellers want to sell more than buyers want to
buy, so there is a surplus. Sellers try to increase their sales by cutting prices. That continues until
they reach the equilibrium price. If the price is below the equilibrium price, buyers want to buy
more than sellers want to sell, so there is a shortage. Sellers can raise their price without losing
customers. That continues until they reach the equilibrium price.
8. Beer and pizza are complements because they are often enjoyed together. When the price
of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded,
and the price in the market for pizza?
When the price of beer rises, the demand for pizza declines, because beer and pizza are
complements and people want to buy less beer. When we say the demand for pizza declines, we
mean that the demand curve for pizza shifts to the left as in Figure 4. The supply curve for pizza
is not affected. With a shift to the left in the demand curve, the equilibrium price and quantity
both decline, as the figure shows. Thus the quantity of pizza supplied and demanded both fall. In
sum, supply is unchanged, demand is decreased, quantity supplied declines, quantity demanded
declines, and the price falls.

Figure 4
9. Describe the role of prices in market economies.
Prices play a vital role in market economies because they bring markets into equilibrium. If the
price is different from its equilibrium level, quantity supplied and quantity demanded are not
equal. The resulting surplus or shortage leads suppliers to adjust the price until equilibrium is
restored. Prices serve as signals that guide economic decisions and allocate scarce resources.
Quick Check Multiple Choice
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
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
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.
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
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, quantities fall
 d. prices fall, quantities rise
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
 1. b
 2. b
 3. d
 4. b
 5. a
 6. c
Problems and Applications
 1. Explain each of the following statements using supply-and-demand diagrams.
 a. When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout
Canada.
 b. When the weather turns warm in Quebec every summer, the prices of hotel rooms in
Caribbean resorts plummet.
 c. When a war breaks out in the Middle East, the price of gasoline rises, while the price of a
used SUV falls.
 a. Cold weather damages the orange crop, reducing the supply of orange juice. This can be
seen in Figure 5 as a shift to the left in the supply curve for orange juice. The new equilibrium
price is higher than the old equilibrium
price.

Figure 5
 b. People often travel to the Caribbean from Quebec to escape cold weather, so demand for
Caribbean hotel rooms is high in the winter. In the summer, fewer people travel to the Caribbean,
since northern climes are more pleasant. The result, as shown in Figure 6, is a shift to the left in
the demand curve. The equilibrium price of Caribbean hotel rooms is thus lower in the summer
than in the winter, as the figure
shows.

Figure 6
 c. When a war breaks out in the Middle East, many markets are affected. Since much oil
production takes place there, the war disrupts oil supplies, shifting the supply curve for gasoline
to the left, as shown in Figure 7. The result is a rise in the equilibrium price of gasoline. With a
higher price for gasoline, the cost of operating a gas-guzzling automobile, like an SUV, will
increase. As a result, the demand for used SUVs will decline, as people in the market for cars
will not find SUVs as attractive. In addition, some people who already own SUVs will try to sell
them. The result is that the demand curve for used SUVs shifts to the left, while the supply curve
shifts to the right, as shown in Figure 8. The result is a decline in the equilibrium price of used
SUVs.

 2. “An increase in the demand for notebooks raises the quantity of notebooks demanded, but
not the quantity supplied.” Is this statement true or false? Explain.
The statement that “an increase in the demand for notebooks raises the quantity of notebooks
demanded, but not the quantity supplied,” in general, is false. As Figure 9 shows, the increase in
demand for notebooks results in an increased quantity supplied. The only way the statement
would be true is if the supply curve were a vertical line, as shown in Figure 10.
Figure 9
Figure 10
 3. Consider the market for minivans. For each of the events listed below, identify which of
the determinants of demand or supply are affected. Also indicate whether demand or supply is
increased or decreased. Then show the effect on the price and quantity of minivans.
 a. People decide to have more children.
 b. A strike by steelworkers raises steel prices.
 c. Engineers develop new automated machinery for the production of minivans.
 d. The price of SUVs rises.
 e. A stock market crash lowers people’s wealth.
 a. If people decide to have more children (a change in tastes), they will want larger vehicles
for hauling their kids around, so the demand for minivans will increase. Supply won’t be
affected. The result is a rise in both price and quantity, as Figure 11
shows.

Figure 11
 b. If a strike by steelworkers raises steel prices, the cost of producing a minivan rises (a rise in
input prices), so the supply of minivans decreases. Demand won’t be affected. The result is a rise
in the price of minivans and a decline in the quantity, as Figure 12
shows.

Figure 12
 c. The development of new automated machinery for the production of minivans is an
improvement in technology. The reduction in firms’ costs results in an increase in supply.
Demand isn’t affected. The result is a decline in the price of minivans and an increase in the
quantity, as Figure 13
shows.

Figure 13
 d. The rise in the price of sport utility vehicles affects minivan demand because sport utility
vehicles are substitutes for minivans (that is, there is a rise in the price of a related good). The
result is an increase in demand for minivans. Supply is not affected. In equilibrium, the price and
quantity of minivans both rise, as Figure 11 shows.
 e. The reduction in people’s wealth caused by a stock market crash reduces their income,
leading to a reduction in the demand for minivans since minivans are likely a normal good.
Supply isn’t affected. As a result, both price and quantity decline, as Figure 14 shows.

Figure 14
4. Over the past 40 years, technological advances have reduced the cost of computer chips. How
do you think this has affected the market for computers? For computer software? For
typewriters?
Technological advances that reduce the cost of producing computer chips represent a decline in
an input price for producing a computer. The result is a shift to the right in the supply of
computers, as shown in Figure 15. The equilibrium price falls and the equilibrium quantity rises,
as the figure shows.
Figure 15
Because computer software is a complement to computers, the lower equilibrium price of
computers increases the demand for software. As Figure 16 shows, the result is a rise in both the
equilibrium price and quantity of software.
Figure 16
Because typewriters are substitutes for computers, the lower equilibrium price of computers
reduces the demand for typewriters. As Figure 17 shows, the result is a decline in both the
equilibrium price and quantity of typewriters.
Figure 17
 5. Using supply-and-demand diagrams, show the effect of the following events on the market
for sweatshirts.
 a. A hurricane in South Carolina damages the cotton crop.
 b. The price of leather jackets falls.
 c. All universities require morning calisthenics in appropriate attire.
 d. New knitting machines are invented.
 a. When a hurricane in South Carolina damages the cotton crop, it raises input prices for
producing sweatshirts. As a result, the supply of sweatshirts shifts to the left, as shown in Figure
18. The new equilibrium has a higher price and lower quantity of
sweatshirts.

Figure 18
 b. A decline in the price of leather jackets leads more people to buy leather jackets, reducing
the demand for sweatshirts. The result, shown in Figure 19, is a decline in both the equilibrium
price and quantity of
sweatshirts.

Figure 19
 c. The effects of universities requiring students to engage in morning calisthenics in
appropriate attire raises the demand for sweatshirts, as shown in Figure 20. The result is an
increase in both the equilibrium price and quantity of
sweatshirts.

Figure 20
 d. The invention of new knitting machines increases the supply of sweatshirts. As Figure 21
shows, the result is a reduction in the equilibrium price and an increase in the equilibrium
quantity of sweatshirts.

Figure 21
6. Suppose that in the year 2010, the number of births was temporarily high. How will this baby
boom affect the price of baby-sitting services in 2015 and 2025? (Hint: Five-year-olds need
babysitters, whereas fifteen-year-olds can be baby-sitters.)
A temporarily high birth rate in the year 2010 leads to opposite effects on the price of babysitting
services in the years 2015 and 2025. In the year 2015, there are more 5-year-olds who need
sitters, so the demand for babysitting services rises, as shown in Figure 22. The result is a higher
price for babysitting services in 2015. However, in the year 2025, the increased number of 15-
year-olds shifts the supply of babysitting services to the right, as shown in Figure 23. The result
is a decline in the price of babysitting services.

Figure 22
Figure 23
 7. Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs
rises, what happens to the market for ketchup? For tomatoes? For tomato juice? For orange
juice?
Since ketchup is a complement for hot dogs, when the price of hot dogs rises, the quantity
demanded of hot dogs falls, thus reducing the demand for ketchup, causing both price and
quantity of ketchup to fall. Since the quantity of ketchup falls, the demand for tomatoes by
ketchup producers falls, so both price and quantity of tomatoes fall. When the price of tomatoes
falls, producers of tomato juice face lower input prices, so the supply curve for tomato juice
shifts out, causing the price of tomato juice to fall and the quantity of tomato juice to rise. The
fall in the price of tomato juice causes people to substitute tomato juice for orange juice, so the
demand for orange juice declines, causing the price and quantity of orange juice to fall. Now you
can see clearly why a rise in the price of hot dogs leads to a fall in the price of orange juice!
 8. The market for pizza has the following demand and supply schedules:
Quantity
Price Quantity Supplied
Demanded

$4 135 26

5 104 53

6 81 81

7 68 98

8 53 110

9 39 121

Graph the demand and supply curves. What is the equilibrium price and quantity in this market?
If the actual price in this market was above the equilibrium price, what would drive the market
toward the equilibrium? If the actual price in this market was below the equilibrium price, what
would drive the market toward the equilibrium?
Quantity supplied equals quantity demanded at a price of $6 and quantity of 81 pizzas (Figure
24). If price were greater than $6, quantity supplied would exceed quantity demanded, so
suppliers would reduce their price to gain sales. If price were less than $6, quantity demanded
would exceed quantity supplied, so suppliers could raise their price without losing sales. In both
cases, the price would continue to adjust until it reached $6, the only price at which there is
neither a surplus nor a shortage.
Figure 24
 9. Because bagels and cream cheese are often eaten together, they are complements.
 a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of
bagels have risen. What could be responsible for this pattern—a fall in the price of flour or a fall
in the price of milk? Illustrate and explain your answer.
 b. Suppose instead that the equilibrium price of cream cheese has risen but the equilibrium
quantity of bagels has fallen. What could be responsible for this pattern—a rise in the price of
flour or a rise in the price of milk? Illustrate and explain your answer.
 a. If the price of flour falls, since flour is an ingredient in bagels, the supply curve for bagels
would shift to the right. The result, shown in Figure 25, would be a fall in the price of bagels and
a rise in the equilibrium quantity of bagels.

Figure 25
Since cream cheese is a complement to bagels, the fall in the equilibrium price of bagels
increases the demand for cream cheese, as shown in Figure 26. The result is a rise in both the
equilibrium price and quantity of cream cheese. So, a fall in the price of flour indeed raises both
the equilibrium price of cream cheese and the equilibrium quantity of bagels.
Figure 26
What happens if the price of milk falls? Since milk is an ingredient in cream cheese, the fall in
the price of milk leads to an increase in the supply of cream cheese. This leads to a decrease in
the price of cream cheese (see Figure 27), rather than a rise in the price of cream cheese. So a fall
in the price of milk could not have been responsible for the pattern observed.
Figure 27
 b. In part (a), we found that a fall in the price of flour led to a rise in the price of cream cheese
and a rise in the equilibrium quantity of bagels. If the price of flour rose, the opposite would be
true: it would lead to a fall in the price of cream cheese and a fall in the equilibrium quantity of
bagels. Since the question says the equilibrium price of cream cheese has risen, it could not have
been caused by a rise in the price of flour.
What happens if the price of milk rises? From part (a), we found that a fall in the price of milk
caused a decline in the price of cream cheese, so a rise in the price of milk would cause a rise in
the price of cream cheese. Since bagels and cream cheese are complements, the rise in the price
of cream cheese would reduce the demand for bagels, as Figure 28 shows. The result is a decline
in the equilibrium quantity of bagels. So a rise in the price of milk does cause both a rise in the
price of cream cheese and a decline in the equilibrium quantity of bagels.
Figure 28
 10. Suppose that the price of hockey tickets at your school is determined by market forces.
Currently, the demand and supply schedules are as follows:
Quantity
Price Quantity Supplied
Demanded

$4 10 000 8000

8 8 000 8000
12 6 000 8000

16 4 000 8000

20 2 000 8000

 a. Draw the demand and supply curves. What is unusual about this supply curve? Why might
this be true?
 b. What are the equilibrium price and quantity of tickets?
 c. Your school plans to increase total enrollment next year by 5000 students. The additional
students will have the following demand schedule:
Price Quantity Demanded

$4 4 000

8 3 000

12 2 000

16 1 000

20 0

Now add the old demand schedule and the demand schedule for the new students to calculate the
new demand schedule for the entire school. What will be the new equilibrium price and quantity?
 a. As Figure 29 shows, the supply curve is vertical. The constant quantity supplied makes
sense because the hockey arena has a fixed number of seats no matter what the
price.

Figure 29
 b. Quantity supplied equals quantity demanded at a price of $8. The equilibrium quantity is
8000 tickets.
c.

Price Quantity Demanded Quantity Supplied

$4 14 000 8000

8 11 000 8000

12 8 000 8000
16 5 000 8000

20 2 000 8000

The new equilibrium price will be $12, which equates quantity demanded to quantity supplied.
The equilibrium quantity is 8000 tickets.
 11. Consider the markets for film streaming services, TV screens, and tickets to movie
theatres.
 a. For each pair, identify whether they are complements or substitutes:
 • Film streaming and TV screens
 • Film streaming and movie tickets
 • TV screens and movie tickets
 b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a
diagram to show what happens to the market for TV screens.
 c. Draw two more diagrams to show how the change in the market for TV screens affects the
markets for film streaming and movie tickets.
 a. Film streaming and TV screens are complements, because you need a TV screen to watch a
film. Film streaming and movie tickets are substitutes, and TV screens and movie tickets are
substitutes as well.
 b. Lower costs of manufacturing TV screens shift the supply curve to the right, which
decreases the equilibrium price and increases the quantity demanded and supplied. (See Figure
30.)

Figure 30
 c. The decrease in the price of TV screens increases the demand for film streaming and
decreases the demand for movie tickets, as Figure 31 shows. The price and quantity demanded of
film streaming will increase. The price and quantity demanded of movie tickets will decrease.

Figure 31
 12. A survey shows an increase in drug use by young people. In the ensuing debate, two
hypotheses are proposed:
 • Reduced police efforts have increased the availability of drugs on the street.
 • Cutbacks in educational efforts have decreased awareness of the dangers of drug addiction.
 a. Use supply-and-demand diagrams to show how each of these hypotheses could lead to an
increase in the quantity of drugs consumed.
 b. How could information on what has happened to the price of drugs help us distinguish
between these explanations?
 a. Reduced police efforts would shift the supply curve to the right, while cutbacks in
education would shift the demand curve to the right. Both imply higher quantity demanded.
 b. As Figure 32 shows, reduced police efforts will reduce the price of drugs, while cutbacks in
education will increase
it.

Figure 32
 13. Consider the following events: Scientists reveal that consumption of oranges decreases
the risk of diabetes and, at the same time, farmers use a new fertilizer that makes orange trees
more productive. Illustrate and explain what effect these changes have on the equilibrium price
and quantity of oranges.
The first event increases the demand for oranges, which increases both the equilibrium price and
quantity. In Figure 33, this first change corresponds to a move from point A to B. The second
event increases the supply of oranges, which decreases the equilibrium price and increases the
equilibrium quantity even further (a move from B to C in Figure 33). Thus, the cumulative effect
on price is ambiguous (we cannot tell whether the increase in price is larger than the decrease).
The effect on quantity is, however, unambiguous: the quantity traded in the market is higher.
Figure 33
Appendix Problems and Applications
 A1. Say that the demand schedule for a good is given by QD = 20 – 2P and the supply
schedule is given by QS = –10 + 4P.
 a. Graph the demand and supply curves, showing the x- and y-intercepts for each. b.
Determine the equilibrium price and quantity.
 a. Supply: x-intercept = –10, y-intercept = 10/4 = 5/2 = 2.5. Demand: x-intercept = 20, y-
intercept = 20/2 = 10.
 b. Equate supply and demand and solve for P: 20 – 2P = –10 + 4P, 6P = 30, P = 30/6 = 5.
Then Q = 20 – 2(5) = 10.
 A2. The demand and supply functions for hockey sticks are given by
 QD = 286 – 20P
 QS = 88 + 40P
 a. Graph the supply and the demand curves, clearly showing the intercepts and indicating the
slopes of the two curves.
 b. Determine the equilibrium price and quantity of hockey sticks.
 c. Suppose that both the men’s and the women’s teams win Olympic gold medals, causing an
increase in the demand for hockey sticks across the country to QD = 328 – 20P. What impact
does this have on the price of hockey sticks and the quantity sold?
 a. The slopes are –1/20 and 1/40, respectively. The horizontal intercepts are found by setting
P = 0 in each equation: Q D(P = 0) = 286; Q S(P = 0) = 88. The vertical intercepts are found by
calculating the price that makes the two quantities zero: P(Q D = 0) = 286/20 = 14.30; P(Q S = 0)
= –88/40 = –2.20. (See Figure 34.)
 b. The equilibrium price is the solution to equation Q D = Q S, 286 – 20P = 88 + 40P, which
gives the result P E = 3.30. Using the demand equation, we can determine the equilibrium
quantity: Q E = 286 – 20 × 3.3 = 220.
 c. The increase in demand determines a shift to the right of the demand curve so that the new
horizontal intercept is 328 instead of 286. The slope of the demand remains the same. The
equilibrium price increases to 4, while the equilibrium quantity increases to 248.

Figure 34
 A3. Suppose that the demand curve for concert tickets is linear. When the price of a ticket is
$5.00, the number of tickets purchased is 1000; when the price of a ticket is $15.00, the number
of tickets purchased is 200. Find the slope of the demand curve.
The slope of the demand curve is equal to the change in price over the change in quantity
demanded: Slope = (15 – 5)/(200 – 1000) = 10/(–800) = –1/80.
 A4. At a price of $320 per tonne, the supply of wheat in Canada is 25 million tonnes and the
demand is 26 million tonnes. When the price increases to $340 per tonne, the supply increases to
27 million tonnes and the demand decreases to 22 million tonnes. Assume that both the demand
and supply curves are linear.
 a. What is the equation for the demand curve for wheat?
 b. What is the equation for the supply curve for wheat?
 c. Using these equations, what is the equilibrium price and quantity of wheat?
 a. A demand equation has the general form Q D = a – bP. When two price–quantity pairs are
known, one can calculate b = –(Q D1 – Q D0)/(P1 – P0). With the numbers given, b = –(22 –
26)/(340 – 320) = 4/20 = 0.20. The intercept is a = Q D0 + bP0 = 26 + 0.20 × 320 = 90. Thus, the
demand equation is Q D = 90 –
0.20P.

 c. The equilibrium price is determined where Q D = Q S, or 90 – 0.20P = –7+ 0.10P. The

solution to this equation is P E = 323.33. Now, using the demand equation, we can determine the
equilibrium quantity: Q E = 90 – (0.20)(323.33) = 25.33.
 A5. Market research has revealed the following information about the market for chocolate
bars: The demand schedule can be represented by the equation QD = 1600 – 300P, where QD is
the quantity demanded and P is the price. The supply schedule can be represented by the
equation
 QS = 1400 + 700P, where QS is the quantity supplied. a. Calculate the equilibrium price and
quantity in the market for chocolate bars.
 b. Say that in response to a major industry ad campaign, the demand schedule for chocolate
bars shifted to the right, as represented by the equation QD = 1800 – 300P. What happens to the
equilibrium price and quantity of chocolate bars in this case?
 c. Returning to the original demand schedule, say that the price of cocoa beans, a major
ingredient in the production of chocolate bars, increased because of a drought in sub-Saharan
Africa, a major producer of cocoa, changing the supply schedule to QS = 1100 + 700P. What
happens to the equilibrium price and quantity in this case?
 a. Equilibrium occurs where quantity demanded is equal to quantity supplied:
QD=QS

P = $0.20
DQ = 1600 – 300(0.20) = 1600 – 60 = 1540 SQ = 1400 + 700(0.20) = 1400 + 140 = 1540

The equilibrium price of a chocolate bar is $0.20 and the equilibrium quantity is 1540 bars.
 b. Given the change in demand, equilibrium occurs where quantity demanded is equal to
quantity

supplied:
QD = 1800 – 300(0.40) = 1800 – 120 = 1680
QS = 1400 + 700(0.40) = 1400 + 280 = 1680 The equilibrium price of a chocolate bar is $0.40
and the equilibrium quantity is 1680 bars.
 c. Given the change in supply, equilibrium occurs where quantity demanded is equal to
quantity supplied:

The equilibrium price of a chocolate bar is $0.50 and the equilibrium quantity is 1450 bars.