Supply and Demand worksheet

Supply and Demand: answer key

1. 1. (B) Price goes up, quantity demanded goes down. That is the Law of Demand in one sentence. (A) reverses the relationship entirely. (C) confuses a movement along the curve with a shift. When the good's own price changes, you slide along the existing demand curve; only non-price factors like income, tastes, or substitute prices shift the curve. (D) involves supply and has nothing to do with the demand side of the question.

2. 2. (C) Lower production costs let firms profitably offer more phones at every price, so supply shifts right. With demand unchanged, equilibrium price drops and quantity rises. (A) mistakes a supply-side event for a demand-side one. Consumers didn't suddenly want more phones; production just got cheaper. (B) has the shift direction backwards: lower costs shift supply *right*, not left. (D) gets the quantity direction wrong; price falls, but quantity *rises* because the new equilibrium sits further right on the demand curve.

3. 3. (B) When price is above equilibrium, sellers produce more than buyers want. Quantity supplied exceeds quantity demanded, and the unsold inventory is a surplus. That surplus puts downward pressure on price. (A) has it backwards, because shortages happen *below* equilibrium. (C) is wrong; markets tend toward equilibrium but they aren't always there, especially when price controls or shocks intervene. (D) gets the Law of Demand wrong; higher prices don't cause consumers to buy *more*.

4. 4. (B) Both shifts push price in the same direction: upward. Rising demand pulls price up, and falling supply also pulls price up. So price *definitely* increases. Quantity is where the ambiguity lives: the demand increase pushes quantity up, but the supply decrease pushes it down. Which effect dominates depends on how large each shift is. (A) treats the quantity increase as certain when the supply decrease could easily offset it. (C) claims price is ambiguous, but both shifts reinforce a price increase. (D) has price moving the wrong direction altogether.

5. 5. (B) A ceiling below equilibrium holds price artificially low. At that low price, more consumers want the good but fewer producers bother supplying it, and the gap is a shortage. (A) describes what a price *floor* above equilibrium does, not a ceiling. (C) is wrong because a binding ceiling by definition forces the price below where the market would settle. (D) is wrong because the ceiling prevents a true equilibrium. The mandated price generates persistent excess demand rather than balancing the market.

6. 6. (B) Coffee getting more expensive drives some coffee drinkers to switch to tea. Tea demand shifts right, which raises both the price and quantity of tea sold. That positive cross-price effect is the hallmark of substitutes. (A) is wrong because nothing about coffee's price changes the cost of *producing* tea, so tea supply stays put. (C) has the direction exactly backwards. (D) ignores how related goods markets connect through consumer choice; substitutes are linked, not independent.

7. 7. (B) The minimum wage is a price floor on labor. Above the equilibrium wage, more workers show up wanting jobs (quantity supplied of labor rises) while firms cut hiring (quantity demanded for labor falls). The gap (more job seekers than open positions) is unemployment, a labor surplus. (A) flips it; a higher wage attracts more workers, not fewer. (C) ignores that a binding floor creates excess supply. (D) contradicts basic cost logic; when labor gets more expensive, firms want less of it.

8. 8. (B) Consumer surplus is the triangle between the demand curve and the price line. Height = $30 − $10 = $20. Base = 200 units. Area of the triangle = 0.5 × $20 × 200 = $2,000. (A) gets a dimension wrong somewhere, possibly dropping the base or height. (C) forgets the 0.5 factor and calculates $20 × 200 = $4,000, which is the full rectangle, not the triangle. (D) appears to compute $30 × 200 ÷ 2, which measures the area under the entire demand curve instead of just the surplus above the price line.

9. 9. (B) At $800, quantity demanded (15,000) exceeds quantity supplied (9,000), producing a 6,000-unit shortage. Deadweight loss exists because apartments between the 9,000th unit and the equilibrium quantity would have been rented at prices both landlord and tenant found acceptable, but the ceiling blocks those transactions. (A) has the wrong type of imbalance; ceilings below equilibrium create shortages, not surpluses. (C) ignores that the blocked transactions represent real welfare losses even though remaining renters pay less. (D) gets the incentive backwards, because artificially low rent *discourages* new construction.

10. 10. (C) Both shifts push equilibrium quantity higher, and that part is certain. Price could go either way: the demand shift pushes price up while the supply shift pushes price down. Which dominates depends on how large each shift is. (A) assumes demand dominates on the price side. (B) assumes supply dominates on price. (D) gets the ambiguity assigned to the wrong variable, since price is the ambiguous one, not quantity.

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