Economics Micro & Macro (CliffsAP)

3. What would happen to the demand curve for cars if the price of gasoline tripled?
   A. It would shift to the right because of income.
   B. It would shift to the right because of population.
   C. It would shift to the left because of price of the complementary good.
   D. It would shift to the left because of the price of the substitute.
   E. Both A and D are correct.

Mini-Review Answers

1. C.Expenditures is not a determinant of demand.


2. B.A graphical increase in demand is illustrated by a shift in all quantities and prices to the right.


3. C.A shift to the left in the demand curve would occur because the price of the complementary good would be
   increasing. Anytime the price of a complementary item increases, the demand curve for the complementary item
   will shift to the left.

A Closer Look at Supply

Students sometimes have a tough time with supply because they have never put themselves in the position of a business
owner. All your life you’ve played the role of a consumer, buying products, looking for deals, and following the law of
demand. Chances are you have never owned a business, so looking at economics through the eyes of a supplier may be a
challenge at first. But with practice and patience, learning about supply can become an easy task. Remember the differ-
ence we discussed earlier between quantity demanded and demand? Well, supply has a similar distinction. The amount
that producers are willing and able to sell at a specific price is called quantity supplied. Examine the data in Figure 2-3.

Figure 2-3

Figure 2-3 shows a supply schedule. Much like a demand schedule, a supply schedule has both the market supply and
the individual firm’s quantity supplied total. In our example, as the price of baseball bats rises, the quantity supplied
also rises. The market supply is the sum of all individual suppliers. When suppliers lower the price for baseball bats,
the quantity supplied also decreases because producers can’t afford to make as many baseball bats. In supply, a positive
relationship exists between price and quantity supplied.

The Supply Curve

The supply curveis a graphic representation of the data contained in our supply schedule. Different from the demand
curve, the supply curve is positively sloped. The curve rises from left to right because of the positive relationship between
price and quantity supplied. As firms increase output, they also have increasing costs. The only way that firms can increase
production is if they increase price to offset their costs. Figure 2-4 shows our supply curve.

Quantity Supplied

Individual Supply Schedule

Price of

Baseball Bats

$10.00 50

$20.00 65

$35.00 82

$42.00 97

$60.00 14 0

Quantity Supplied

Market Supply Schedule

Price of

Baseball Bats

$10.00 15 0

$20.00 310

$35.00 552

$42.00 710

$60.00 985

Part I: The Fundamentals