Practice Problems -- Demand
ANSWERS - These answers are only explanations of how you should have drawn your graphs.
You need to draw the graphs to get full credit.
Graphically show what will happen in each case (to demand or quantity demanded). Remember to always assume ceteris paribus unless otherwise noted. Make sure you label your axes correctly !!
1. Assume peanut butter and jelly are complements. What will happen to the demand or quantity demanded for jelly if the price of peanut butter increases?
Answer: The demand curve for jelly will shift to the left (decrease). Since you would buy less peanut butter when its price increases, you will also buy less jelly (since they are complements).
2. Assume that Jello is a normal good. What will happen to the demand or quantity demanded of Jello if the income of the people who buy Jello goes down?
Answer: The demand curve for Jello will shift to the left (decrease). By definition, a normal good is a good we buy less of if income goes down.
3. Assume that turkey and ham are substitutes. What will happen to the demand or quantity demanded for ham if the price of turkey increases?
Answer: The demand curve for ham will shift to the right (increase). Since the price of turkey has gone up, some people will shift out of turkey and into ham.
4. Assume the price of cars increases. What will happen to the quantity demanded of cars?
Answer: There is no shift in the demand curve for cars. You would put two different prices and quantities along your curve and show why demand would decrease along the horizontal (quantity) axis.
5. Assume Spam is an inferior good. What will happen to the demand or quantity demanded of Spam if the income of the people buying Spam decreases?
Answer: The demand curve for Spam will shift to the right (increase). By definition an inferior good is one we buy more of if our income goes down.
6. Assume popcorn and movies are complements. What will happen to the demand or quantity demanded for popcorn if the price of movies goes down?
Answer: The demand curve for popcorn will shift to the right (increase). Since you would go to more movies if the price of movies goes down, you would also buy more popcorn (since they are complements).
7. Assume that bread and butter are complements. Also assume that bread is a normal good. What will happen to the demand or quantity demanded for bread if the price of butter increases AND the income of the people who buy bread increases? (Hint: shift one at a time but on the same graph).
Answer: The demand curve for bread will shift to the left (decrease) due to the price of butter increasing (we will buy less butter and therefore also less bread since they are complements) and then there will be another shift in the demand curve for bread (on the same graph) - it will shift to the right (since buy definition a normal good is a good we buy more of if our income goes up). So you will shift the curve to the left and to the right -- SHOW both shifts on your graph.
8. Assume that apples are an inferior good. Also assume that apples and oranges are substitutes, and that apples and caramel are complements. What will happen to the demand or quantity demanded for apples if the price of oranges decreases AND the income of the people who buy apples increases AND the price of caramel increases? (Hint: shift one at a time but on the same graph).
Answer: The demand curve for apples will first shift tot he left (due to the price of oranges dropping - so some people will buy more oranges and fewer apples) and then the demand curve for apples will shift to the left again (since income increased and apples are an inferior good) and the demand curve for apples will shift left a third time (since we will buy less caramel and therefore fewer apples - since they are complements). Show ALL THREE SHIFTS TO THE LEFT with three single arrows.