Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 2] DEMAND, SUPPLY, AND EQUILIBRIUM: AN OVERVIEW 21
6. When the price of a substitute of commodity X falls, the demand for X (a) rises, (b) falls, (c) remains unchanged, or
(d) any of the above.
Ans. (b) See Section 2.3.
7. When both the price of a substitute and the price of a complement of commodity X rise, the demand for X (a) rises,
(b) falls, (c) remains unchanged, or (d) all of the above are possible.
Ans. (d) An increase in the price of a substitute, by itself, causes an increase in the demand for X. An increase in
the price of a complement, by itself, causes a decrease in the demand for X. When both the price of a substitute
and the, price of a complement of commodity X rise, the demand curve for X can rise, fall, or remain unchanged
depending on the relative strength of the two opposing forces.
8. In drawing a farmer’s supply curve for a commodity, all but which one of the following are kept constant?
(a) Technology, (b) the prices of inputs, (c) features of nature such as climate and weather conditions, or (d) the
price of the commodity under consideration.
Ans. (d) See Section 2.5.
9. A producer’s positively sloped supply curve for a commodity represents (a) a maximum boundary of the producer’s
intentions, (b) a minimum boundary of the producer’s intentions, (c) in one sense a maximum and in another sense a
minimum boundary of the producer’s intentions, or (d) none of the above.
Ans. (c) For various alternative prices of a commodity, the supply curve shows the maximum quantities of the
commodity the producer intends to offer per unit of time. On the other hand, for various alternative quantities of
the commodity per time period, the supply curve shows the minimum prices the producer must be given to offer
the specified quantities.
10. If the supply curve of a commodity is positively sloped, a rise in the price of the commodity, ceteris paribus, results
in and is referred to as (a) an increase in supply, (b) an increase in the quantity supplied, (c) a decrease in supply, or
(d) a decrease in the quantity supplied.
Ans. (b) See Section 2.7.
11. When the market supply curve for a commodity is negatively sloped, we have a case of (a) stable equilibrium,
(b) unstable equilibrium, or (c) any of the above is possible and we cannot say without additional information.
Ans. (c) See Section 2.10.
12. If, from a position of stable equilibrium, the market supply of a commodity decreases while the market demand
remains unchanged, (a) the equilibrium price falls, (b) the equilibrium quantity rises, (c) both the equilibrium
price and the equilibrium quantity decrease, or (d) the equilibrium price rises but the equilibrium quantity falls.
Ans. (d) A decrease in the market supply of a commodity refers to an upward shift in the market supply curve.
With an unchanged market demand curve for the commodity, the new equilibrium point will be higher and to
the left of the previous equilibrium point. This involves a higher equilibrium price but a lower equilibrium quantity
than before.
Solved Problems
DEMAND
2.1 (a) Express in simple mathematical language what was discussed in Section 2.1.
(b) How do we arrive at the expression Qd x ¼ f (P x ) cet. par.?