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Page 34 1a. The three points are 8 [= (3+5)] milkshakes at a price of $1.50, 13 [= (5+8)] milkshakes at a price of $1, and 18 [= (7+11)] at a price of 50 cents. b. The law of demand is satisfied, because a fall in the price of milkshakes (from $1.50 to $1, or from $1 to 50 cents) increases quantity demanded (from 8 to 13 milkshakes, or again from 13 to 18 milkshakes). c. 2a. Because DVDs are a normal product, demand increases due to higher incomes. b. DVDs and DVD players are complementary products, so a drop in the price of players increases not just the quantity demanded of players but also the demand for DVDs. c. A sudden expectation by consumers of a fall in DVD prices means they will delay DVD purchases, decreasing current demand. d. Because DVDs and movie theatre tickets are substitute products, a rise in the price of movie tickets increases the demand for DVDs. 3a. A decrease in the price of DVDs, which raises the quantity demanded of DVDs, is associated with a movement along the demand curve for DVDs and is categorized as a change in quantity demanded. b. Because DVDs and videotapes are substitute products, a decrease in the price of DVDs decreases the entire demand curve for videotapes. This occurs because the quantity of videotapes is reduced at every possible videotape price. This is therefore categorized as a change in demand. Page 39 1a. The law of supply is satisfied, since a rise in the price of tomatoes (from $3 to $3.50, and then from $3.50 to $4) increases quantity supplied (from 5 to 6 millions kgs, and then from 6 to 7 million kgs). b. (i) As this resource price rises, the supply of tomatoes decreases, shifting the curve to the left. (ii) Because tomatoes and corn are supply-related products, a drop in the price of corn will increase the supply of tomatoes, shifting the curve to the right. (iii) An early frost decreases the supply of tomatoes, shifting the curve to the left. (iv) Technological progress in tomato cultivation increases the supply of tomatoes, shifting the curve to the right. (v) An expected fall in the price of tomatoes increases the current supply, as producers try and get today’s high price, shifting the curve to the right. c. 2a. A drop in the price of corn, which reduces the quantity supplied of corn, is associated with a movement along the supply curve for corn and is classified as a change in quantity supplied. b. Because corn and tomatoes are supply-related products, a drop in the price of corn causes a rightward shift in the entire supply curve for tomatoes. This happens because some farmers will respond by moving from corn to tomato production. The result is classified as a change in supply. Page 43 1a. Supply has decreased. On a graph, this is shown as a leftward shift, which is associated with a rise in equilibrium price. b. With a decrease in supply, equilibrium quantity decreases. c. The rise in equilibrium price and fall in equilibrium quantity are accompanied by a temporary shortage that occurs immediately after the decrease in supply. d. 2a. Demand has increased. On a graph, this is shown as a rightward shift, which is associated with a rise in equilibrium price. b. With an increase in demand, equilibrium quantity increases. c. The rise in equilibrium price and quantity are accompanied by a temporary shortage that occurs immediately after the increase in demand. d. |