EQUILIBRIUM
18) In a competitive market, how do above-equilibrium prices get “pulled” back down to equilibrium?
19) If both demand and supply increase in the market for smartphones, what will happen to the price and the
quantity?
20) Consider the graph to the right. Provide a full explanation as to why equilibrium changed from point A to
point B. Use specific examples for the lemonade market.
21) Draw a graph that illustrates a simultaneous change in demand and supply. In your example, draw the
graph where quantity gets bigger, but the change in price is unknown. Be sure to include labels.
PRICE CEILINGS AND PRICE FLOORS
22) When the minimum wage is set above the equilibrium point, what economic problem arises in the market
for labor?
23) What is one group of people who benefit from a price floor in the milk market.
24) List two reasons why economists think price controls are generally inefficient.
25) What happens when a government imposes a quota in a market?
26) What do price ceilings usually create? What do price floors usually create?
27) Draw a graph that illustrates a surplus when a price floor is set at $3. Be sure to include labels.
ELASTICITY OF DEMAND
28) What does the price elasticity of demand measure?
29) Why are diamond rings generally considered an elastic item?
30) Suppose 45 hot dogs are sold for $1 apiece. When the price rises to $3, only 35 are sold. Is demand for
hot dogs elastic, unit elastic, or inelastic over this price range?
31) Suppose the price of hamburger patties rises from $4 to $5. This causes the quantity of hamburger buns
demanded to decrease from 250 to 150. What is the cross-price elasticity of demand?
32) A cotton candy vendor had a revenue of $500. He raised the price, but revenue fell to $450. What type of
demand elasticity does this represent?
33) Draw a graph that illustrates a generally inelastic demand curve. Be sure to include labels.