# Demand and Supply Questions

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Submitted By Lucky2112
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Chapter 4
1.

Suppose we have the following market supply and demand schedules for bicycles:

a.

Plot the supply curve and the demand curve for bicycles in Exhibit 1.

Exhibit 1

See Exhibit 3.

Exhibit 3

Practice Questions to accompany Mankiw & Taylor: Economics

1

b.

What is the equilibrium price of bicycles?

€300

c.

What is the equilibrium quantity of bicycles?

50 bicycles

d.

If the price of bicycles were €100, is there a surplus or a shortage?
How many units of surplus or shortage are there? Will this cause the price to rise or fall?

Shortage, 70 – 30 = 40 units, the price will rise

e.

If the price of bicycles were €400, is there a surplus or a shortage?
How many units of surplus or shortage are there? Will this cause the price to rise or fall?

Surplus, 60 – 40 = 20 units, the price will fall

f.

Suppose that the bicycle maker's labour union bargains for an increase in its wages. Further, suppose this event raises the cost of production, makes bicycle manufacturing less profitable, and reduces the quantity supplied of bicycles by 20 units at each price of bicycles. Plot the new supply curve and the original supply and demand curves in Exhibit 2.
What is the new equilibrium price and quantity in the market for bicycles? Exhibit 2

See Exhibit 4. equilibrium price = €400, equilibrium quantity = 40 bicycles

Exhibit 4
Practice Questions to accompany Mankiw & Taylor: Economics

2

2.

Each of the events listed below has an impact on the market for bicycles. For each event, which curve is affected (supply or demand for bicycles), what direction is it shifted, and what is the resulting impact on equilibrium price and quantity of bicycles?

a.

The price of cars increases.

Answer: demand, shifts right, equilibrium price and quantity rise

b.

Consumers' incomes decrease, if bicycles are a normal good.

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