Worksheet #3 Demand, Supply and Prices: Basic Concepts

1. Define Demand
2. What is a demand schedule? A demand curve?
3. Why is the demand curve downward sloping?
4. What are the DETERMINANTS OF DEMAND (otherwise known as Demand Shifters)
5. Distinguish between each pair of terms: Substitute and complement, normal and inferior good.
6. Distinguish between a change in demand and a change in quantity demanded. This distinction is
very important.
7. Define Supply
8. What is a supply schedule? A supply curve?
9. Why is the supply curve upward sloping?
10. What are the DETERMINANTS OF SUPPLY (otherwise known as Supply Shifters)
11. Distinguish between a change in supply and a change in quantity supplied.
12. Draw and demand curve and supply curve together in the same diagram and identify
equilibrium.
13. What is equilibrium?
14. Draw a diagram of a market in equilibrium and identify a price level at which a surplus would
occur. Label that surplus on your diagram.
15. Draw a diagram of a market in equilibrium and identify a price level at which a shortage would
occur. Label that shortage on your diagram.
16. How does the market react to a position of disequilibrium (i.e. a surplus or a shortage). Describe
the mechanism involved in clearing the market to restore equilibrium.











Worksheet #3 Demand, Supply and Prices: Basic Concepts
Problems to Try:
The following table shows the market for olives in Sorel.
Price Quantity Demanded Quantity Supplied
2 700 100
4 600 200
6 500 300
8 400 400
10 300 500
12 200 600
14 100 700

(a) Plot the demand and supply curves and label them appropriate with D
1
and S
1
. Mark equilibrium
E
1
on your diagram.
(b) What are the values of equilibrium price and quantity?
(c) If the price of olives were $10, would there be a surplus or a shortage in this market? How
much? Indicate the amount on the graph.
(d) Suppose that demand were to decrease by 200. Draw and label the new demand curve D
2
. What
are the new values of equilibrium? Mark the new equilibrium E
2
on the graph.
(e) Following the change in (d) suppose that supply were to decrease by 50%. Draw and label the
new curve S
2
. Now what are the new values of equilibrium price and quantity? Mark the
equilibrium E
3
on your graph.
2. Circle all of the factors that will lead to a decrease in the demand for cheese.
A. an increase in the price of cheese
B. an increase in the price of milk
C. the expectation by consumers that the price of cheese is likely to increase
D. an increase in the price of wine
E. new research that links the consumption of cheese to migraine headaches
F. a decrease in the price of milk.
3. Consider the effects of each of the following events on the market for beef (which is a normal good)
in Canada. Illustrate each change and identify the impact on equilibrium.
A. Medical research indicates that cholesterol in beef is a major cause of heart attacks
B. Improved cattle feeds reduce the cost of beef production
C. Chicken sales are banned after an outbreak of chicken cholera
D. The price of pork decreases because the government gives a subsidy to pork producers
E. A reduction in income taxes causes the incomes of Canadian consumers to rise sharply
F. The price of cattle feed rises during a drought.