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a. What is the difference between a \ Graph your answer.

b. For each of the following changes, determine whether there will be a change in quantity demanded or a change in demand. i. a change in the price of a related good ii. a change in tastes iii. a change in the number of buyers iv. a change in price v. a change in consumer expectations vi. a change in income a. A change in demand refers to a shift of the demand curve. A change in quantity

demanded refers to a movement along a fixed demand curve. b. A change in price causes a change in quantity demanded. All of the other changes listed

shift the demand curve.

A

change in quantity supplied A change in supply

2.

Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact each of the following would have on demand or supply. Also show how equilibrium price and equilibrium quantity would change.

a. Winter starts and the weather turns sharply colder. b. The price of tea, a substitute for hot chocolate, falls. c. The price of cocoa beans decreases. d. The price of whipped cream falls.

e. A better method of harvesting cocoa beans is introduced.

f. The Surgeon General of the U.S. announces that hot chocolate cures acne.

g. Protesting farmers dump millions of gallons of milk, causing the price of milk to rise. h. Consumer income falls because of a recession, and hot chocolate is considered a normal

good.

i. Producers expect the price of hot chocolate to increase next month. j. Currently, the price of hot chocolate is $0.50 per cup above equilibrium. (a) (b)

(c) (e)

(d)

(f)

(g) (h)

(i)

(j)

In (j), a price above equilibrium will affect both quantity demanded and quantity supplied and will cause a surplus in the market. It will not cause either demand or supply to shift.3.

Fill in the table below, showing whether equilibrium price and equilibrium quantity go up, go down, stay the same, or change ambiguously.

No Change in Demand An Increase in Demand A Decrease in Demand No Change in Supply P same Q same P up Q up P down Q down An Increase in Supply P down Q up P ambiguous Q up P down Q ambiguous A Decrease in Supply P up Q down P up Q ambiguous P ambiguous Q down CHOICE

1. Which of the following is an example of a market? (d)

a. a gas station b. a garage sale c. a barber shop

d. All of the above are examples of markets. (d) 2. In a competitive market, the price of a product

a. is determined by buyers and the quantity of the product produced is determined by

sellers.

b. is determined by sellers and the quantity of the product produced is determined by

buyers.

c. and the quantity of the product produced are both determined by sellers. d. None of the above is correct.

3. A downward-sloping demand curve illustrates (d)

a. that demand decreases over time. b. that prices fall over time.

c. the relationship between income and quantity demanded. d. the law of demand. Table 4-1 Price Aaron’s Angela’s Austin’s Alyssa’s Quantity Quantity Quantity Quantity Demanded Demanded Demanded Demanded $0.00 20 16 4 8 $0.50 18 12 6 6 $1.00 14 10 2 5 $1.50 12 8 0 4 $2.00 6 6 0 2 $2.50 0 4 0 0 4. Refer to Table 4-1. Whose demand does not obey the law of demand? (c) a. Aaron’s b. Angela’s c. Austin’s d. Alyssa’s

5. Refer to Table 4-1. If these are the only four buyers in the market, then the market quantity demanded at a price of $1 is (d)

a. 4 units. b. 7.75 units. c. 14 units. d. 31 units.

6. When we move along a given demand curve, (c)

a. only price is held constant.

b. income and price are held constant.

c. all nonprice determinants of demand are held constant. d. all determinants of quantity demanded are held constant. 7. Which of the following is not held constant in a supply schedule? (c)