AP_Krugman_Textbook

c.Demand increases, so the demand curve for second-hand

snowblowers shifts rightward. At the original equilibrium

price, the quantity of second-hand snowblowers demand-

ed exceeds the quantity supplied. This is a case of short-

age. The equilibrium price of second-hand snowblowers

will rise.

Tackle the Test:

Multiple-Choice Questions

1. d


2. d


3. c


4. b


5. d

Tackle the Test:

Free-Response Question

2.

Module 7

Check Your Understanding

1. a.The decrease in the price of gasoline caused a rightward
   shift in the demand for large cars. As a result of the
   shift, the equilibrium price of large cars rose and the
   equilibrium quantity of large cars bought and sold
   also rose.
   b.The technological innovation has caused a rightward shift
   in the supply of fresh paper made from recycled stock. As
   a result of this shift, the equilibrium price of fresh paper
   made from recycled stock has fallen and the equilibrium
   quantity bought and sold has risen.
   c.The fall in the price of pay-per-view movies causes a left-
   ward shift in the demand for movies at local movie the-
   aters. As a result of this shift, the equilibrium price of
   movie tickets falls and the equilibrium number of people
   who go to the movies also falls.


2. Upon the announcement of the new chip, the demand
   curve for computers using the earlier chip shifts leftward
   (demand decreases), and the supply curve for these com-
   puters shifts rightward (supply increases).
   a.If demand decreases relatively more than supply
   increases, then the equilibrium quantity falls, as shown
   here:

Q 2 Q 1 Quantity of oranges

P 1

P 2

Price of

oranges

S 1

S 2

D

E 1

E 2

c.The demand for roses increases the week of Valentine’s

Day. This is a rightward shift ofthe demand curve.

d.The quantity of gasoline demanded falls in response to a

rise in price. This is a movement alongthe demand curve.

Tackle the Test:

Multiple-Choice Questions

1. e


2. a


3. c


4. d


5. a

Tackle the Test:

Free-Response Question

Module 6

Check Your Understanding

1. a.The quantity of houses supplied rises as a result of an
   increase in prices. This is a movement alongthe supply
   curve.
   b.The quantity of strawberries supplied is higher at any
   given price. This is an increase in supply, which shifts the
   supply curve to the right.
   c.The quantity of labor supplied is lower at any given wage.
   This is a decrease in supply, which shifts the supply curve
   leftward compared to the supply curve during school
   vacation. So, in order to attract workers, fast-food chains
   have to offer higher wages.
   d.The quantity of labor supplied rises in response to a rise
   in wages. This is a movement alongthe supply curve.
   e.The quantity of cabins supplied is higher at any given
   price. This is an increase in supply, which shifts the supply
   curve to the right.


2. a.This is an increase in supply, so the supply curve shifts
   rightward. At the original equilibrium price of the year
   before, the quantity of grapes supplied exceeds the quan-
   tity demanded, and the result is a surplus. The price of
   grapes will fall.
   b.This is a decrease in demand, so the demand curve
   shifts leftward. At the original equilibrium price, the
   quantity of hotel rooms supplied exceeds the quantity
   demanded. The result is a surplus. The rates for hotel
   rooms will fall.

Price of apples

Quantity of apples

D 1

D 2

S-4 SOLUTIONS TO AP REVIEW QUESTIONS