## Demand and Supply

Read this chapter and attempt the "Try It" exercises. Also, complete the concept problems and the numerical problems at the end of the chapter. This chapter will help you gain familiarity and competencies with regard to basic demand and supply concepts. At a minimum, you should be able to list the factors that shift the demand curve and those that shift the supply curve. Make sure to carefully study the difference between demand and quantity demanded (and the difference between supply and quantity supplied).

### 3.4 Review and Practice

#### Numerical Problems

Problems 1–5 are based on the graph below.

- At a price of $1.50 per dozen, how many bagels are demanded per month?
- At a price of $1.50 per dozen, how many bagels are supplied per month?
- At a price of $3.00 per dozen, how many bagels are demanded per month?
- At a price of $3.00 per dozen, how many bagels are supplied per month?
- What is the equilibrium price of bagels? What is the equilibrium quantity per month?

Problems 6–9 are based on the model of demand and supply for coffee as shown in Figure 3.10 "Changes in Demand and Supply". You can graph the initial demand and supply curves by using the following values, with all quantities in millions of pounds of coffee per month:

Price | Quantity demanded | Quantity supplied |
---|---|---|

$3 | 40 | 10 |

4 | 35 | 15 |

5 | 30 | 20 |

6 | 25 | 25 |

7 | 20 | 30 |

8 | 15 | 35 |

9 | 10 | 40 |

- Suppose the quantity demanded rises by 20 million pounds of coffee per month at each price. Draw the initial demand and supply curves based on the values given in the table above. Then draw the new demand curve given by this change, and show the new equilibrium price and quantity.
- Suppose the quantity demanded falls, relative to the values given in the above table, by 20 million pounds per month at prices between $4 and $6 per pound; at prices between $7 and $9 per pound, the quantity demanded becomes zero. Draw the new demand curve and show the new equilibrium price and quantity.
- Suppose the quantity supplied rises by 20 million pounds per month at each price, while the quantities demanded retain the values shown in the table above. Draw the new supply curve and show the new equilibrium price and quantity.
- Suppose the quantity supplied falls, relative to the values given in the table above, by 20 million pounds per month at prices above $5; at a price of $5 or less per pound, the quantity supplied becomes zero. Draw the new supply curve and show the new equilibrium price and quantity.

Problems 10–15 are based on the demand and supply schedules for gasoline below (all quantities are in thousands of gallons per week):

Price per gallon | Quantity demanded | Quantity supplied |
---|---|---|

$1 | 8 | 0 |

2 | 7 | 1 |

3 | 6 | 2 |

4 | 5 | 3 |

5 | 4 | 4 |

6 | 3 | 5 |

7 | 2 | 6 |

8 | 1 | 7 |

- Graph the demand and supply curves and show the equilibrium price and quantity.
- At a price of $3 per gallon, would there be a surplus or shortage of gasoline? How much would the surplus or shortage be? Indicate the surplus or shortage on the graph.
- At a price of $6 per gallon, would there be a surplus or shortage of gasoline? How much would the surplus or shortage be? Show the surplus or shortage on the graph.
- Suppose the quantity demanded increased by 2,000 gallons per month at each price. At a price of $3 per gallon, how much would the surplus or shortage be? Graph the demand and supply curves and show the surplus or shortage.
- Suppose the quantity supplied decreased by 2,000 gallons per month at each price for prices between $4 and $8 per gallon. At prices less than $4 per gallon the quantity supplied becomes zero, while the quantities demanded retain the values shown in the table. At a price of $4 per gallon, how much would the surplus or shortage be? Graph the demand and supply curves and show the surplus or shortage.
- If the demand curve shifts as in problem 13 and the supply curve shifts as in problem 14, without drawing a graph or consulting the data, can you predict whether equilibrium price increases or decreases? What about equilibrium quantity? Now draw a graph that shows what the new equilibrium price and quantity are.