Chapter 5
Problem Set 3
Supply and Demand
Answers

Good:  ice cream

• The price of frozen yogurt increases in price.

Demand shifts right 
P up Q up

Good: PC computers

• New innovation reduces the production costs of monitors.

Supply shifts right
 P down Q up

Good:  dairy products

• The government increases subsidies to dairy farmers.

Supply shifts right
P down Q up

Good:  golf clubs

• Fee for playing on all public greens triples.

Demand shifts left
P down Q down

DVD players

1. The Federal government imposes quotas on all imported DVD players.
   
   Supply shifts left  -  P up Q down
    

2. The price of DVD discs declines.
   
   Demand shifts right -  P up  Q up
    

3. Four manufacturers of DVD players build new factories in the U.S.
   
   Supply shifts right   -  P down  Q up
    

4. Recording artists demand a doubling of all royalties
   
   Supply shifts left  - P up Q down
    

5. Napster is allowed to continue operations
   
   Demand shifts left - P down Q down

Good is SUV

1. People show a preference for SUVs over other types of vehicles.
   
   Demand shifts right - P up Q up
    

2. The cost of labor employed in the automotive industry increases.
   
   Supply shifts left - P up Q down
    

3. Consumer study finds that SUVs are much less safe than sedans.
   
   Demand shifts left - P down Q down
    

4. The cost of gasoline increases.
   
   Demand shifts left - P down Q down
    

5. The Federal government implements new safety feature regulations on all SUVs.
   
   Supply shifts left - P up Q down
    

6. Quotas are removed on foreign SUVs.
   
   Supply shifts right - P down Q up
    

7. Prices for all new SUVs are expected to increase within 2 months.
   
   Demand shifts right - P up and Q up
   
    

The following relate to Pizza Hut pizzas.

1. The price for Dominios pizzas increases by 20%.
   
   Demand shifts right - P up Q up
    

2. The government removes all subsidies for dairy products.
   
   Supply shifts left - P up Q down
    

3. Your income rises.  You consider Pizza Hut pizza as an inferior good.
   
   Demand shifts left - P down Q down