AP_Krugman_Textbook

76 section 2 Supply and Demand

3. The equilibrium price will rise, but equilibrium quantity may
   increase, decrease, or stay the same if
   a. demand increases and supply decreases.
   b. demand increases and supply increases.
   c. demand decreases and supply increases.
   d. demand decreases and supply decreases.
   e. demand increases and supply does not change.


4. An increase in the number of buyers and a technological
   advance will cause
   a. demand to increase and supply to increase.
   b. demand to increase and supply to decrease.

c. demand to decrease and supply to increase.

d. demand to decrease and supply to decrease.

e. no change in demand and an increase in supply.

5. Which of the following is certainly true if demand and supply
   increase at the same time?
   a. The equilibrium price will increase.
   b. The equilibrium price will decrease.
   c. The equilibrium quantity will increase.
   d. The equilibrium quantity will decrease.
   e. The equilibrium quantity may increase, decrease, or stay
   the same.

Tackle the Test: Free-Response Questions

1. Draw a correctly labeled graph showing the SUV market in
   equilibrium. On your graph, show the effect on equilibrium
   price and quantity in the market for SUVs if the price of
   gasoline increases.

Answer (5 points)

1 point:The vertical axis is labeled “Price” (or “P”) and the horizontal axis is
labeled “Quantity”‘ (or “Q”).

1 point:The graph shows a downward sloping demand curve and an upward
sloping supply curve (with labels).

1 point:Equilibrium price and quantity are found where supply and demand
intersect and are labeled on the appropriate axes.

1 point:A new (and labeled) demand curve is shown to the left of the original
demand curve.

1 point:The new equilibrium price and quantity are found at the intersection of
the original supply curve and the new demand curve and are labeled on the
appropriate axes.

Price

Quantity

S

P 1

P 2

Q 2 Q 1

D 1

D 2

E 2

E 1

2. Draw a correctly labeled graph showing the market for cups of
   coffee in equilibrium. On your graph, show the effect of a
   decrease in the price of coffee beans on equilibrium price and
   equilibrium quantity in the market for cups of coffee.