1. Ch 3 Supply/Demand Review
AP Econ 31

3. Homework Check
Get out a different colored pen and correct your answers
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4. 1a. Income increases; cereal is inferior good
1b. Income increases; cereal is normal good
1c. Price of oatmeal decreases

5. 1d. Price of milk decreases
1e. Sale on breakfast food in a week  price will be lower in future

6. 2a. Students are committing to Stanford  demand increases  price and quantity sold increase as well.
2b. Decrease in supply and demand

7. 2c. Stanford football sucks  demand decreases  price and quantity sold both decrease
2d. More efficient silk screening of that big tree  increase in supply  decrease in price, increase in quantity sold

8. 3a.
Can tell if it’s a normal good only if more people buy the product because incomes have increased (or stop buying the product because of decrease in income).
b. Decrease in quantity demanded when price increased is because of simple law of demand, has nothing to do with income. c.

9. 4a. b. Equilibrium Price = $15, QD = 1700 Price
Quantity Demanded (CAN + US)
$25
= 1500 20
= 2200 15
= 2900 10
= 3600 5
= 4300

10. Canadians will pay a higher price, and will consume less (~1200).
Price = $20.50, QD = 2125

11. 5. According to the New York Times (November 18, 2006), the number of car producers in China is increasing rapidly. The newspaper reports that “China has more car brands now than the US… But while car sales have climbed 38 percent in the first three quarters of the year, automakers have increased their output even faster, causing fierce competition and a slow erosion of prices. “ At the same time, Chinese consumers’ incomes have risen. Assume that cars are a normal good. Use a diagram of the supply and demand for cars in China to explain what has happened in the Chinese car market.

12. 6. Before report: might break record
After report: he’s totally not playing
a b.

13. c. Graph a: Greater decrease in the demand than the increase in supply
c. Graph a: Greater decrease in the demand than the increase in supply. Graph b: Greater increase in supply than the decrease in demand.
d. Scalper has inside information: Will try to sell as many tickets as possible at the higher equilibrium price before people find out.