Supply & Demand Part 1 Study Guide

The Law of Demand states that as P_____ QD_____, and as P______ QD______.

Draw and fully label a demand graph using the data in the table below:

Price Quantity Demanded

$0.50 200

$1.00 150

$1.25 100

$2.00 50

$2.50 0

Answer the following questions using the graph below:

Market for bags of industrial fertilizer

1. How many bags of industrial fertilizer will be purchased at a price of $20? Remember to put

your answer in thousands. _______________

2. What would cause QD to drop from 50 bags of industrial fertilizer to 10 bags of industrial

fertilizer?________________________________________________________________

The Law of Supply states that as P______ QS______, and as P______ QS _______.

Draw and fully label a supply graph based on the data in the table.

Draw and fully label a COMPLETE supply and demand graph.

o Include:

Price axis

Quantity axis

Supply curve

Demand curve

Equilibrium point

Equilibrium price (market clearing price)

Equilibrium quantity

Equilibrium is the point where ____________________________________________________.

What is the equilibrium price and equilibrium quantity on the following graph?

______________________________________________________________________________

If a market price is set higher or lower than the equilibrium price it is called

__________________________.

Excess demand is also called______________________________.

Excess supply is also called _______________________________.

Price Quantity Supplied

$2.00 8

$4.00 10

$6.00 14

$8.00 18

Application Practice

Demand Schedule for cookies sold in the school store

Price (per cookie)

Quantity Demanded

Quantity Supplied

$0.10 800 100

$0.25 600 200

$0.50 400 400

$0.75 200 600

$1.00 100 800

1. In the space to the right of the supply & demand schedule, graph out the data provided (on the same

graph).

2. The equilibrium price ___________. The equilibrium quantity is ____________. How did you know

this was the equilibrium price and quantity?________________________________________________

3. Assume that Ms. Moody was selling the cooks for $1.00 each. What type of disequilibrium is occurring

in the market (shortage or surplus)?________________________ How did you

know?_____________________ What will Ms. Moody most likely do to prices?__________________

4. Assume that Ms. Mood was selling the cookies for $0.25 each. What type of disequilibrium is occurring

in the market (shortage or surplus)?________________________ How did you

know?_____________________ What will Ms. Moody most likely do to prices?__________________

5. Suppose that because of the concerns about childhood obesity, cookies can no longer be sold for less

than $1.00.

a. What type of price control is this?__________________ How do you know?

________________________________________________________________________

b. What type of disequilibrium is caused by this price control? ___________________________

6. Suppose that due to concerns about affordability, cookies can no longer be sold for more than $0.25.

a. What type of price control is this?__________________ How do you know?

________________________________________________________________________

b. What type of disequilibrium is caused by this price control? ___________________________

7. A government sets a price of $0.10 per cookie.

a. What type of price control? __________________

b. How can you tell?_______________________________________

8. A government sets a price of $0.75 per cookie.

a. What type of price control? __________________

b. How can you tell?_______________________________________

Market Equilibrium and Disequilibrium Practice

Part 1: The following is a list of characteristics. Please indicate whether the characteristics apply to market

equilibrium, price floor, or price ceiling.

1. Quantity supplied equals quantity demanded _______________________________________

2. Government sets a maximum price that can be charged ______________________________

3. Government sets a minimum price that can be charged _______________________________

4. Creates excess demand (shortage) _____________________________

5. Creates excess supply (surplus) ________________________________

6. Price is higher than the equilibrium price _____________________________

7. Price is lower than this equilibrium price ________________________________

Part 2: Read each of the following scenarios and indicate whether it involves a price floor or price ceiling.

1. The government decides to set a minimum price on tires to keep people from buying so many.

a. Is this a price floor or price ceiling?_______________________

b. What type of disequilibrium results?______________________

c. Draw the graph for this situation.

2. The government decides that cheddar cheese prices are rising too quickly and decides to set a

maximum price for cheddar cheese.

a. Is this a price floor or price ceiling?_________________________

b. What type of disequilibrium results?________________________

c. Draw the graph for this situation.