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ECON 205 Chapters 3 & 4 Practice Questions

1.

What is the law of demand?

2.

What would be the effects of each of the following on the demand for hamburger in Swift Current,
Saskatchewan. In each case, identify the responsible determinant of demand.

a) The price of chicken falls.

b) The price of hamburger buns doubles.

c) Scientists find that eating hamburger prolongs life.

d) The population of Swift Current doubles.

3.

What would be the effect of each of the following on the demand for Chevrolets in Canada? In each
case, identify the responsible determinant of demand.

a) The price of Fords plummets.

b) Consumers believe that the price of Chevrolets will rise next year.

c) The incomes of Canadians rise.

d) The price of gasoline falls dramatically.


4.

The following graph shows three market demand curves for cantaloupe. Starting at point A, which point
represents

a) an increase in quantity demanded?

b) an increase in demand?

c) a decrease in demand?

d) a decrease in quantity demanded?

5.

What is the law of supply?

6.

Show and describe what would happen to the market supply curve for a good in each of the following
cases.

a) an increase in the number of suppliers and an increase in subsidies

b) a decrease in the number of suppliers and an increase in taxes

c) an increase in input prices and increasing costs of regulation

d) producers expect now that the price will be lower later


7.

What would be the effects of each of the following on the supply of coffee worldwide? In each case,
identify the responsible determinant of supply.

a) Freezing temperatures wipe out half of Brazil’s coffee crop.

b) The wages of coffee workers in Latin America rise as unionization efforts succeed.

c) Indonesia offers big subsidies to its coffee producers.

d) Genetic engineering produces a super coffee bean that grows faster and needs less care.

e) Coffee suppliers expect prices to be higher in the future.

8.

a) At the price of $6, would there be a shortage or surplus and how large would it be?

b) At the price of $3, would there be a shortage or surplus and how large would it be?

c) If the demand for coffee decreased by 3000 kg at every price, would there be a shortage or
surplus and how much would it be at the price of $4?

d) Using the original amounts of supply and demand, if the supply for coffee increased by 6000 kg
at every price, would there be a shortage or surplus and how much would it be at the price of
$2?

Market for Coffee


7

4
Price ($)

0
0 2 4 6 8 10
Quantity (,000 of kg)
9.

Beginning from an initial equilibrium, draw the effects of the following changes in terms of the relevant
supply and demand curves.

a) an increase in the price of hot dogs on the hamburger market

b) a decrease in the number of taxi companies in Halifax on cab trips

c) the effect of El Niño rainstorms destroying the strawberry crops in Ontario

10.

Refer to the following supply and demand curve diagram.

a) Starting from an initial equilibrium at E, what shift or shifts in supply and/or demand could move
the equilibrium price and quantity to each of points A through I?

b) Starting from an initial equilibrium at E, what would happen if both a decrease in the price of a
substitute in production and an increase in income occurred, if it is a normal good?

c) Starting from an initial equilibrium at E, what would happen if both an increase in the price of an
input and an advance in technology occurred?

d) If a price floor is imposed above the equilibrium price, which of A through I would tend to be the
quantity supplied, and which would tend to be the quantity demanded? Which would be the
new quantity exchanged?

e) If a price ceiling is imposed below the equilibrium price, which of A through I would tend to be
the quantity supplied, and which would tend to be the quantity demanded? Which would be the
new quantity exchanged?