Principles Review questions on introductory material

These questions are purely for you to check your understanding. We can go
through some or all of them in the Week 2 Zoom sessions, but you are not
required to complete or submit them.

1. For each of the following changes affecting the market for apples, do they
result in a shift in the demand curve?
a) Newspaper stories suggesting that apples are bad for our health. Y –
demand curve shifts to left for any price of apples
b) A rise in the price of apples. N – only movement along the demand curve
up then left
c) Bad weather affecting the apple harvest. N – shifts supply curve to the left
d) A fall in the price of oranges. Y – substitute for apples – for any given
price of apples, demand curve shifts to left

2. For each of the following changes affecting the market for cars, do they
result in a shift in the supply curve?
a) An increase in demand for cars. N – shifts demand curve
b) A fall in price of windscreen glass. Y – less production cost = shifts supply
curve to right
c) Improved technology for producing engines. Y – less production cost –
supply curve shifts to right
d) A fall in the price of cars. N- movement along existing supply curve

3. Consider the market for coal. Assume there is an increase in the wages of
coal miners and a simultaneous fall in the price of natural gas. Show the
effects on the coal market in a supply and demand diagram. Can we say
how the price of coal changes?

4. Electricity production has very high fixed costs, but low variable costs.
What does this mean in terms of returns to scale in the industry? What does
the Average Cost curve look like?

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Shifts in Supply Curve
 If supply curve shifts to the right = increase in supply
 If supply curve shifts to the left – decrease in supply