Exercise Name:

Introduction to Economics Student number:

demand-supply

MULTIPLE CHOICE (X your answers)

1. Economist use the term ‘perfect competition’ for a situation where
a. All consumers are price takers d. All producers are price takers
b. Producers and consumers are price takers
c. Consumers are price takers and producers are price setter
2. The cost of pressing DVDs has fallen. This will cause
a. An increase in demand c. An increase in quantity demanded
b. An increase in supply d. An increase in quantity supplied
3. When a decrease in the price of one good causes the demand for another good to decrease, the goods are
a. Complements b. Inferior c. Normal d. substitutes
4. The ‘law of demand’ states that
a. As price fall, demand decreases c. As price rise, demand increases
b. As prices fall, quantity demanded increases d. As prices rise, quantity demanded increases
5. If the demand for coffee decreases as income falls, coffee is a/an ……. Good
a. Complementary b. Inferior c. Normal d. superior
6. The quantity demanded of Pepsi has decreased. This is most likely to be because
a. Pepsi advertising is not as effective as it was c. Coca-Cola prices fall
b. Pepsi prices have gone up d. Pepsi consumers have more income
7. When excess supply (surplus) occurs in a free market, there is a tendency for
a. Quantity demanded to rise c. Quantity supplied to fall
b. Price to fall d. Price to rise
8. Which of the following would not cause a shift in the demand curve for CDs?
a. a change in income c. a change in wealth
b. a change in the price of CDs d. a change in the price of DVDs

Essays:

1. The weekly demand and supply schedules for t-shirts (in millions) in a free market are as follows:

Price ($) 8 7 6 5 4 3 2 1
Quantity demanded 6 8 10 12 14 16 18 20
Quantity supplied 18 16 14 12 10 8 6 4

(a) What is the equilibrium price and quantity?

(b) Assume that changes in fashion cause the demand for t-shirts to rise by 4 million at each price. What
will be the new equilibrium price and quantity? Has equilibrium quantity risen as much as the rise in
demand? Explain why or why not.
(c) Now plot the data in the table on a graph and mark the equilibrium. Also plot the new data
corresponding to (b) and mark the new equilibrium.