Question

1. The market for toasters is a competitive market. Suppose that the quantity of toasters supplied per year depends as follows on the price of a toaster:

Price (dollars per toaster)	Quantity supplied (millions of toasters)
32	4.0
34	5.0
36	5.5
38	6.0
40	6.5

a. On a piece of graph paper, plot the supply curve for toasters.

b. How does the quantity supplied of toasters change when the price changes?

2. The market for toasters is a competitive market. Suppose that the quantity of toasters demanded per year depends as follows on the price of a toaster:

Price (dollars per toaster)	Quantity demanded (millions of toasters)
32	7.0
34	6.5
36	6.2
38	6.0
40	5.8

a. On the same piece of paper you plotted the supply curve in problem 1, plot the demand curve for toasters.

b. If the price is $34, is there a shortage or surplus of toasters?

c. If the price is $40, is there a shortage or a surplus of toasters?

d. What is the equilibrium price and quantity of toasters?

3. Tell whether the following factors shift the demand curve for toasters rightward, leftward, or not at all.

a. Toasters are a normal good and people’s incomes rise 20 percent.

b. Medical reports indicate that eating toast prevents cancer.

c. The cost of the metal used to produce toasters rises by 40 percent.

d. Most people use jam on their toast and the price of jam falls 50 percent.

4. Tell whether the following factors shift the supply curve for tasters rightward, leftward, or not at all.

a. The cost of the metal used to produce toasters rises by 40 percent.

b. Medical reports indicate that eating toast prevents cancer.

c. New technology is developed that allows toaster manufacturers to use fewer parts when making a toaster.

d. The price of a toaster rises 30 percent.

Answer the following multiple choice questions.

5. A normal good is a good for which

a. there are very few complements.

b. demand increases when income increases.

c. there are few substitutes.

d. demand decreases when income increases.

6. Over the past decade, technological improvements that have lowered the cost of producing an automobile have increased

a. both the supply and the demand for automobiles.

b. the supply but not the demand for automobiles.

c. the demand but not the supply of automobiles.

d. neither the supply nor the demand for automobiles.

7. When the demand for a good decreases, its equilibrium price ____ and equilibrium quantity ____.

a. falls; decreases

b. falls; increases

c. rises; decreases

d. rises; increases

8. Pizza and hamburgers are substitutes for consumers. A fall in the price of a pizza ____ the price of a hamburger and ____ the quantity of hamburgers.

a. raises; increases

b. raises; decreases

c. lowers; increases

d. lowers; decreases

9. The price of corn used to feed hogs increases. As a result, the equilibrium price of a hog ____ and the equilibrium quantity ____.

a. rises; increases

b. rises; decreases

c. falls; increases

d. falls; decreases

10. Teenagers drink more soda than older people. Suppose that the number of teenagers increases. Draw a supply and demand diagram showing how this change affects the equilibrium price and quantity of soda.

a. rises; increases

b. rises; decreases

c. falls; increases

d. falls; decreases

Answer 1

1. (a) By plotting the given supply schedule ,we get the supply curve as shown below:

(b) As the price increases ,quantity supplied of toasters increases and as price decreases quantity supplied of toasters decreases. This implies that price and quantity supplied of toasters has a positive or direct relationship.

2.(a) By plotting the given demand schedule ,we get the demand curve as shown above.

(b) If P=$34 , then Qd= 6.5 million toasters and Qs= 5 million toasters. Because Qd>Qs, this implies there is shortage of toasters = (6.5-5)= 1.5 million toasters.

(c) If P=$40, then Qs= 6.5 million toasters and Qd= 5.8 million toasters. Because Qs>Qd ,this implies there is surplus of toaster - (6.5-5.8) = 0.7 million toasters.

(d) Equilibrium occurs where demand equals supply. Therefore, equilibrium price= $36 and quantity= 6 million toasters.