Page 118 - Krugmans Economics for AP Text Book_Neat

3. The equilibrium price will rise, but equilibrium quantity may c. demand to decrease and supply to increase.
increase, decrease, or stay the same if d. demand to decrease and supply to decrease.
a. demand increases and supply decreases. e. no change in demand and an increase in supply.
b. demand increases and supply increases.
5. Which of the following is certainly true if demand and supply
c. demand decreases and supply increases.
increase at the same time?
d. demand decreases and supply decreases.
a. The equilibrium price will increase.
e. demand increases and supply does not change.
b. The equilibrium price will decrease.
4. An increase in the number of buyers and a technological c. The equilibrium quantity will increase.
advance will cause d. The equilibrium quantity will decrease.
a. demand to increase and supply to increase. e. The equilibrium quantity may increase, decrease, or stay
b. demand to increase and supply to decrease. the same.

Tackle the Test: Free-Response Questions

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

Answer (5 points)

Price
S

E
P 1 1
P 2 E 2
D 1
D 2
Q 2 Q 1 Quantity
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.

76 section 2 Supply and Demand