NOTE: Be sure to avoid conflating changes in Demand and Supply with changes in Quantity Demanded and Quantity Supplied.
Warning: All answers and explanations must be in your own words based on your knowledge of the course material and information provided by your professor. If you copy and paste or heavily borrow a response or explanation from elsewhere, you will not get credit. Further, if you copy and paste or heavily borrow from elsewhere and don’t cite your source (meaning you plagiarized or cheated), then you will get a 0 for the assignment and may fail the entire course.
- If we assume that Coke and Pepsi are substitute products, what would happen to the supply and demand for Pepsi if Pepsi raised its price? What would happen to the supply and demand for Coke if Pepsi raised its price?
- In the United States, oranges are grown primarily in Florida and California. Imagine if there is a freeze in Florida that destroys 20% of the orange crop. What would happen to the market for Florida oranges? How would the California orange market change?
In the next set of problems, you examine scenarios and determine if there is a change in the quantity supplied and quantity demanded. Alternatively, the scenario may describe a shift in supply or a shift in demand. Remember a change in the quantity supplied or the quantity demanded results in movement along the current supply and demand curves. Whereas, a shift in supply or a shift in demand results in a shift of the whole curve to the left or right of the current curve. The tables below list questions to help you identify if there was a shift in supply or a shift in demand.
| Things that shift in the supply curve: |
| A change in the cost of production |
| An advancement in technology/productivity |
| A change in the number of suppliers |
| A change in taxes/subsidies |
| A change in future price expectations |
| A random event, such as a weather event, that impacts production |
| Things that shift the demand curve: |
| A change in demander income |
| A change in the price of a related good or service |
| A change in tastes and preferences or quality |
| A change in future price expectations |
| A change in population/number of demanders |
In each problem, you must explain the scenario’s effect on the market. If the quantity supplied or the quantity demanded changes, state how (increase or decrease). If instead, the scenario meets one of the criteria above, indicating there is a shift. If one of the curves shifts, state why and the direction it shifts (left or right). You should then state the effect on price (increase or decrease).
Example problem:
The first lady declares war on sweets in America. You make doughnuts.
The first lady’s opinion is valued and will cause a change in tastes and preferences. People will like doughnuts less. This preference change will shift the demand curve to the left. This decreases the quantity demanded and decreases the price.
- You are a corn farmer. Insects attack your crops.
- Price of gasoline goes up. You own a gas station. (Hint: answer this from the supplier’s perspective)
- The price of corn goes up. You have planted soybeans. (Assume they are substitutes)
- The price of peanut butter goes up. You sell jelly.
- Your patent runs out on your popular and necessary drug. (The patent kept others from producing generic drugs based on yours)
- Amazon has picked your small town to be their new worldwide headquarters. This means the population of your town will increase.
- The country is going into a recession. You sell jewelry.
- The price of TVs just decreased by 20%. What does this mean for Demand and Supply and Quantity Demanded and Quantity Supplied of TVs?
- Your product was declared one of “Oprah’s Favorite Things.”
- You grow cotton and Eli Whitney just invented the cotton gin.
- A hurricane is predicted to hit the rich coffee growing area of Colombia. You sell coffee (Hint: you should answer this as a demander of coffee beans grown from Colombia and other places).
- Congress just passed a tax credit for energy efficient home improvements. You sell solar panels (but it is households, not suppliers that get the tax credit).
- Soldiers come home from World War II, get married, and need housing for their families. You build houses.
