10/1 KEY - Iowa State University

Chapter 3 Cont.
Supplemental Instruction
Iowa State University
Leader:
Course:
Instructor:
Date:
Veronica
Econ 101
Kreider
9-22-14
1. Define and draw an example:
a. Excess demand: At a given price, the amount by which quantity demanded
exceeds quantity supplied
b. Excess supply: At a given price, the amount by which quantity supplied exceeds
quantity demanded.
2. Suppose that demand is given by the equation QD = 500 − 50P, where QD is quantity
demanded, and P is the price of the good. Supply is described by the equation QS = 50 +
25P, where QS is quantity supplied. What is the equilibrium price and quantity?
500-50Peq = 50 + 25Peq
Peq= $6
Qeq = 500 – 50(6) = 200
so, Peq= $6 & Qeq=200
3. How would each of the following affect the market for denim jeans in the United States?
Illustrate each answer with a supply-and-demand diagram.
a. The price of denim cloth increases.
Supply decreases, (shifts leftward)
So Peq increases, while Qeq decreases
b. An economic slowdown in the United States causes household incomes to
decrease.
Demand Decreases (shifts leftward)
So Peq drecreases and Qeq decreases
4. When we observe an increase in both price and quantity, we know that the demand curve
must have shifted rightward. However, we cannot rule a shift in the supply curve as well.
Prove this by drawing a supply-and-demand diagram for each of the following cases:
a. Demand curve shifts rightward, supply curve shifts leftward, equilibrium price
and quantity both rise.
b. Demand and supply curves both shift rightward, equilibrium price and quantity
both rise.
c. Evaluate the following statement: “During the oil price spike from 2007 to mid2008, we know the supply curve could not have shifted leftward, because quantity
supplied rose.” True or False? Explain.
Supplemental Instruction
1060 Hixson-Lied Student Success Center  294-6624  www.si.iastate.edu

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