Supply and Demand Practice

Section 1: Creating a Supply and Demand Graph Complete items 1 through 3. Use the supply and demand schedules to build a graph using the graphing area below. Then answer the following questions. Feel free to return to the previous activities in the lesson if you need to review major concepts.  1. Artisan Bakery sells loaves of bread that it bakes fresh every day. Use the supply schedule to graph each point of the supply curve. Connect each point with a line to build a supply curve. Price of bread per loaf Quantity supplied $4.50 40 $5.00 50 $5.50 60 $6.00 75 $6.50 85 In which direction does the supply curve head? How does this show the law of supply? (1 point) The supply curve increases to the right. This shows the law of supply as the number of loaves produced increases with the price of bread. 2. Use the demand schedule to graph each point of the demand curve. Connect each point with a line to build a demand curve. Price of bread per loaf Quantity demanded $4.50 95 $5.00 75 $5.50 60 $6.00 50 $6.50 45 In which direction does the demand curve head? How does this show the law of demand? (1 point) The demand curve increases to the left and decreases to the right. This shows the law of demand because the number of loaves demanded increases as the price of bread decreases. 3. What is the equilibrium price of a loaf of bread? How can you tell this from the graph? (1 point) The equilibrium price of a loaf is $5.50. This is where the demand curve and supply curve intersect.    Section 2: Applying Changes to a Supply and Demand Graph Complete items 4 through 9. Use the supply and demand schedules to build a graph in the graphing area below. Then answer the questions that follow.  4. A shortage of grain has caused a change in the bakery's supply schedule. Use the supply schedule to graph each point of the new supply curve. Connect each point with a line to build a supply curve. Price of bread per loaf Quantity supplied $4.50 30 $5.00 35 $5.50 40 $6.00 50 $6.50 60 Explain why the supply curve changed as compared to the previous graph. (1 point) The supply has been reduced, thus increasing the price for the same level of demand. 5. Customer demand for loaves of bread stays the same. Use the demand schedule to graph each point of the demand curve. Connect each point with a line to build a demand curve. Price of bread per loaf Quantity demanded $4.50 95 $5.00 75 $5.50 60 $6.00 50 $6.50 45 What is the new equilibrium price of a loaf of bread? (1 point) The new equilibrium price is $6.00.  6. In response to rising prices, the local government passes a law that says the price of a loaf of bread cannot be higher than $5.50. Add a horizontal line across the graph at that price and give it a label: price ceiling. At this lower price, how many loaves would the seller be willing to make? How many loaves would customers want to buy? (1 point) At the $5.50 price, the bakery would only be able to produce 40 loaves, but the customers would want to purchase 60 loaves. 7. Does this new price set by the government result in a surplus or shortage of loaves of bread? (1 point) The new government price would result in a shortage of bread.  8. After a few months, the government repeals the price ceiling law and the bakery decides that it will no longer sell bread for less than $6.50 per loaf. Add a horizontal line across the graph at that price and give it a label: price floor. At this higher price, how many loaves would the bakery be willing to sell? How many loaves would customers want to buy? (1 point) At the $6.50 price, the bakery would be willing to sell 60 loaves, but the customers would only want to buy 45. 9. Does this new price set by the bakery result in a surplus or shortage of loaves of bread? (1 point) The new price would result in a surplus of loaves. Section 3: Applying Changes to a Supply and Demand Graph Complete items 10 through 13. Use the supply and demand schedules to build a graph using the graphing area below. Then answer the questions that follow.  10. Artisan Bakery also sells gallon containers of milk. Use the supply schedule to graph each point of the supply curve. Connect each point with a line to build a supply curve. Price of milk per gallon $2.00 Quantity supplied 25 $2.50 30 $3.00 40 $3.50 50 $4.00 55 Use the demand schedule to graph each point of the demand curve. Connect each point with a line to build a demand curve. Price of milk per gallon Quantity demanded $2.00 41 $2.50 40 $3.00 40 $3.50 39 $4.00 39 What is the equilibrium price for a gallon of milk? (0.25 point) The equilibrium price for a gallon of milk is $3.00. 11. Compare the supply and demand graph you made for gallons of milk with the graph you made for loaves of bread in section 1. How do the supply curves in both graphs look? Are they similar or very different? (0.25 point) The milk in unlike the bread due to the fact that the demand is consistent regardless of the price. 12. Now examine the demand curves for both graphs. How do they compare? Are they similar or very different? (0.25 point) The supply is similar in the fact that it rises as the price increases; however, the demand for milk does not change with the price, whereas the demand for bread fluctuated. 13. Based on your comparison, which product sold by Artisan Bakery has more elasticity in demand: milk or bread? How can you tell? (0.25 point)  The bread has more elasticity in demand because it ranged from 45-95 loaves with only a $2 change. The milk was inelastic because in ranged from only 39-41 even with the 100% increase in price.  