TUTORIAL 2

Topic: Demand and Supply

1) In 1997-98, wheat prices reached almost 20€ per kg. This was very high by
normal standards and a farmer in Düsseldorf decided to increase his wheat
production from 6.000 to 20.000kg. We might say that:
A. moving up the supply curve
B. shifting supply curve to the left
C. shifting supply curve to the right
D. moving down the wheat demand curve

2) Price of oats has risen significantly over the past few weeks and we know that oat
and wheat are substitute goods, then we might say that:
A. Quantity demanded for oats increases
B. Quantity demanded for wheat increases
C. Demand for wheat increases
D. Demand for wheat decreases

3) If pizza prices fall, and we know that pancake and pizza are substitutes, then
A. Quantity demanded of pancake will fall and the supply of pancake will
shift left
B. The demand for pancake will shift left and the quantity supplied of
pancake will fall
C. The demand for pancake will shift right and the quantity supplied of
pancake will increase
D. The quantity demanded for pancake will fall and the supply will shift right

4) Which factor will shift the market supply curve in the opposite direction from the
other three?
A. technological improvements
 B. lower interest rate
C. an increase in the number of firms producing
D. The expectation of higher prices for the output.

5) Unexpected weather has destroyed most banana farms in Brazil. Besides, the
scientist has revealed that banana is very good for health especially for elder
people. We can predict that
A. Price of banana in the market will decrease and quantity of banana will
increase
B. Price of banana in the market will increase and quantity of banana will
also increase
C. Price of banana in the market will increase but we cannot conclude about
quantity of banana
D. Price of banana in the market will decrease but we cannot conclude about
quantity of banana

6) Your salary has increased this month and you decide not to buy hamburger for
tonight dinner. We can say that, hamburger is a ……….

7) Your have just received a sum of money from your auntie and you decide to buy
Tiffany necklace. We can say that, Tiffany necklace is a ………

8) Suppose the demand and supply curves for good X are as follows:
QD  600  7.5 P
Where P is price in €
QS  100  10 P
a) Sketch the demand and supply curves for good X
b) Determine the equilibrium price and equilibrium quantity supplied and
demanded
c) What does “ceteris paribus” mean in relation to the demand curve
9) Assume market of bicycle is at equilibrium, draw a supply and demand diagram
for each of the following changes and show what happens
a) Incomes of people who like to ride bicycles increase
b) Technology for producing bicycles improves
c) The cost of the metal alloy used in producing bicycles increases

10) What is the difference between a movement along the supply curve and a shift in
the supply curve?

11) Answer the following questions:

a) Suppose you find out that an increase in the price of postage leads to an
increase in the demand for overnight delivery couriers and decrease in the
demand for envelopes. For which good is postage a complement and for
which good is it a substitute?
b) Suppose someone tells you that a decrease in the price of pizza causes an
increase in the demand for beer. Is it expected? Why?
c) An increase in price of coffee causes no changes in the demand for tea.
What can you conclude from this information?