Assignment

Demand and Supply

Marks: 18+15

1. Graphically show the effects of following factors on demand or supply for Olpers milk.(Use
separate graphs for each) 3 marks

a. Increase in advertising by Nurpur milk

b. Increase in advertisement discouraging use of packed milk
c. Grant of subsidy to Olper’s manufacturers

2. Make a demand and supply curve using the schedule given below. Also indicate the equilibrium
price and quantity. 3 marks. Also indicate whether there will be shortage or surplus at a price of
$18.0 1 mark

3. The following data relates to the market for jars of coffee in the UK.

PRICE PER JAR DEMAND (m) SUPPLY (m)

5.00 60 150
4.50 65 140
4.00 70 130
3.50 75 120
3.00 80 110
2.50 85 100
2.00 90 90
1.50 95 80
1.00 100 70

a. On graph paper plot the D and S Curves, and mark on current market equilibrium price and
quantity. (Make sure the diagram scales are correct and large enough to work with).
6 marks
 b. Explain and show what would happen if the jars were priced at £3 each. 1 mark
c. Explain and show what would happen if the jars were priced at £1.50 each. 1 mark
d. Show the likely effect of a rise in the price of tea, which increases demand for coffee by 10m
jars at each and every price. Add a new column in the table above to calculate new Quantity
demanded at each price and then plot the new demand curve on the same graph.
3 marks

Multiple Choice
1. The market demand curve shows

 a. the effect on market supply of a change in the demand for a good or service.

 b. the quantity of a good that consumers would like to purchase at different
prices.

 c. the marginal cost of producing and selling different quantities of a good.

 d. the effect of advertising expenditures on the market price of a good.

2. At a price of $4.95, a pulp fiction novel is expected to sell 9,000 copies. If the novel is offered
for sale at a price of $3.95, then the publisher can expect to sell

 a. less than 9,000 copies.

 b. 9,000 copies.

 c. more than 9,000 copies.

 d. It is impossible to predict the effect of a lower price on sales.

3. During a recession, economies experience increased unemployment and a reduced level of

activity. How would a recession be likely to affect the market demand for new cars?

 a. Demand will shift to the right.

 b. Demand will shift to the left.

  c. Demand will not shift, but the quantity of cars sold per month will decrease.

 d. Demand will not shift, but the quantity of cars sold per month will increase.

4. The market supply curve shows

 a. the effect on market demand of a change in the supply of a good or service.

 b. the quantity of a good that firms would offer for sale at different prices.

 c. the quantity of a good that consumers would be willing to buy at different
prices.

 d. All of the above are correct.

5. At a price of $299.95, the manufacturer of a portable gas-powered generator is willing to

produce 19,000 units per quarter. At a price of $349.95, it is likely that the manufacturer will
be willing to produce

 a. more than 19,000 units per quarter.

 b. 19,000 units per quarter.

 c. less than 19,000 units per quarter.

 d. It is impossible to predict the effect of a higher price on the number of units of
a product that a firm will be willing to produce.

6. Unionized workers may be able to negotiate with management for higher wages during periods
of economic prosperity. Suppose that workers at automobile assembly plants successfully
negotiate a significant increase in their wage package. How would the new wage contract be
likely to affect the market supply of new cars?

 a. Supply will shift to the right.

 b. Supply will shift to the left.

 c. Supply will not shift, but the quantity of cars produced per month will decrease.

 d. Supply will not shift, but the quantity of cars produced per month will increase.
7. If automobile manufacturers are producing cars faster than people want to buy them,

 a. there is an excess supply and price can be expected to decrease.

 b. there is an excess supply and price can be expected to increase.

 c. there is an excess demand and price can be expected to decrease.

 d. there is an excess demand and price can be expected to increase.

8. If a computer software company introduces a new program and finds that orders from
wholesalers far exceed the number of units that are being produced,

 a. there is an excess supply and price can be expected to decrease.

 b. there is an excess supply and price can be expected to increase.

 c. there is an excess demand and price can be expected to decrease.

 d. there is an excess demand and price can be expected to increase.

9. Market equilibrium refers to a situation in which market price

 a. is high enough to allow firms to earn a fair profit.

 b. is low enough for consumers to buy all that they want.

 c. is at a level where there is neither a shortage nor a surplus.

 d. is just above the intersection of the market supply and demand curves.

.  10. A decrease in demand causes the equilibrium price to:

A. Rise B. Fall

C. Remain constant D. Indeterminate

11. When price is below equilibrium level, there will be:

 A. Surplus commodity in the market B. Shortage of commodity in market

C. Supply curve will shift D. Demand curve will shift

12. An increases in the price of mutton provides information which:

Tells consumers to buy more mutton B. Tells consumers to buy more spices
A.

C. Tells producers to produce more mutton D. Provides no information

13. Ten rupees is the equilibrium price for good X. If government fixes price at Rs. 5, there
is:

A. A shortage B. A surplus

C. Excess supply D. Loss

14. The price and sales of sugar both increase. What could be the cause of this?

A decrease in the incomes of the

A. B. A decrease in the tax on sugar
consumers

An increase in the wages of workers in An increase in the price of sugar

C. D.
the sugar industry substitutes

15. Refer to the diagram below:

.

The equilibrium price and quantity in this market will be:

$1.00 and 200.

A.

$1.60 and 130.

B.

$.50 and 130.

C.

$1.60 and 290.

D.