Skip to content
Introduction to Supply and Demand Curves Example

Here is a question that originally hit our economics forums. The questions are based on some introductory supply and demand curves. The picture and the answers after the jump.

Here is what one user responded with.

Event A. Since you need chips to make computers, a decrease in the price of chips means that people will buy more computers. This will shift the demand for computers outward, as shown by A

Event B. When incomes fall, the demand for inferior goods shifts outwards, while the demand for normal goods shift inwards. This is intuitive because when you have less money, you demand more cheap goods. The best answer for this one would be B, because the Supply-Demand curves shows the demand for normal goods shifting inwards.

Event C. When the price of margarine rises, people will not want to buy it as much as they will buy butter. Therefore, the demand for butter will increase because butter has become relatively cheaper. You want to look for the graph of the butter market. This curve should show an outward shift in demand. Ergo, the right answer is A

Event D. When the price of office buildings goes down, producers will be less willing to supply it. If you have the resources to build two goods, say a dell mp3 player or an ipod, and the ipod sold for more money, you would probably want to produce ipods, other things equal. The Building Firm works off of the same principle. Thus, since the schools are relatively more expensive to buy, the firm will want to supply more of them. The correct answer for what happens to the market for school buildings would be C

Event E. Use the same logic that applied to Event A to get this answer.

Leave a comment

Your email address will not be published..