WorksheetsECO Unit 2 -Pt 1/2
Total questions: 4
Worksheet time: 38mins
Unit 2 – Supply & Demand
Day 1: Introduction to Demand
Textbook-Style
The Law of Demand
One of the most fundamental principles in economics is the Law of Demand. This law states that, all else being equal, when the price of a good or service rises, the quantity demanded falls. When the price falls, the quantity demanded rises. This is called an inverse relationship because price and quantity demanded move in opposite directions. The Law of Demand applies across markets—from everyday items like snacks to major purchases like cars.
Why the Curve Slopes Downward
Economists often illustrate demand with a graph. The demand curve slopes downward from left to right, showing the relationship between price and the quantity consumers are willing and able to purchase. But why does it slope downward? Two main forces explain this: the substitution effect and the income effect.
The substitution effect occurs when consumers switch to cheaper alternatives as prices rise. For example, if the price of beef rises, families may substitute chicken or pork instead. The income effect occurs because a change in price changes how far your money stretches. When prices fall, your real income feels larger—you can buy more with the same amount of money. When prices rise, it feels like your income buys less, so you cut back.
Demand Across Different Goods
Not all goods respond equally to price changes. Some goods are considered necessities, like gasoline or electricity, where demand does not fall much even when prices rise. Other goods, like fast food or entertainment, may experience large changes in demand when prices shift. Economists call this responsiveness elasticity, a concept that will be explored later, but it helps us understand why the demand curve can be steep for some goods and flatter for others.
Real-World Implications
The Law of Demand is not just theory—it influences pricing strategies, government policy, and even your own daily choices. Businesses must carefully consider how customers will react to price changes. Governments often monitor demand to predict the effects of taxes or subsidies. For consumers, understanding demand explains why sales, discounts, and price cuts influence what ends up in our shopping carts.
Terms & Concepts Reference (Expanded)
Law of Demand: When the price of a good rises, the quantity demanded falls; when the price falls, quantity demanded rises.
Inverse Relationship: A relationship where one variable goes up as the other goes down.
Demand Curve: A downward-sloping graph showing demand at various prices.
Quantity Demanded: The specific amount of a good consumers will purchase at a single price.
Substitution Effect: When prices rise, consumers replace expensive goods with cheaper alternatives.
Income Effect: When prices fall, consumers feel as if their money has more buying power, leading them to purchase more.
Elasticity (preview): The degree to which demand responds to changes in price.
Real-World & Local Connection
Spurs Tickets and Demand in Action
San Antonio is a city passionate about the Spurs. When the team makes the playoffs, ticket prices soar. According to the Law of Demand, higher prices mean fewer fans are willing or able to attend. As a result, games may not sell out as quickly, and some fans are priced out. Contrast this with a mid-season game against a weaker opponent. If ticket prices drop, attendance rises because more fans can afford to go. The Spurs’ ticket office is constantly balancing prices and demand to maximize attendance and revenue.
H-E-B and Fiesta Sales
During Fiesta, San Antonio families shop for snacks, drinks, and supplies at H-E-B. If chips and soda are placed on sale, demand increases dramatically—families stock up because the lower prices make these items more affordable. If the same items doubled in price, many customers would cut back, substitute cheaper snacks, or skip them altogether. Fiesta season demonstrates how demand responds directly to price.
Texas Gas Prices as a Case Study
Gasoline presents a different case. Even when prices rise, people still buy gas because they need it to commute, shop, and live their lives. Demand does fall slightly—some people carpool, drive less, or postpone trips—but it never drops as sharply as it does for luxury items. This shows that the Law of Demand applies universally, but the degree of change depends on the good in question. Gas is a necessity with relatively inelastic demand.
Clarifier / Remediation (Expanded)
Clearing Up Misconceptions About Demand
Students often confuse demand with quantity demanded. These terms are related but distinct. Demand refers to the entire relationship between prices and the quantities purchased—the whole curve. Quantity demanded refers to a single point on the curve, or how much consumers will buy at one specific price.
👉 Example: At $1 per taco, you buy 4 tacos. At $3 per taco, you buy 1 taco. The full set of possibilities (1–4 tacos at different prices) represents demand. The single choice—“4 tacos at $1”—is quantity demanded.
Another common misunderstanding is believing that when price rises, demand disappears entirely. This is not the case. Demand simply decreases in quantity—it rarely goes to zero. For example, even if gas prices climb, people still need to buy gas. They may just buy less or cut back in other areas.
Finally, students often confuse movements along the demand curve with shifts in the demand curve. A movement along the curve happens when price changes and quantity demanded changes in response. A shift occurs when the entire curve moves due to a non-price factor like income, tastes, or substitutes. This difference will become critical as we explore shifters of demand in the next lesson.
What does the Law of Demand state?
When the price of a good rises, the quantity demanded falls; when the price falls, quantity demanded rises.
When the price of a good rises, the quantity demanded rises; when the price falls, quantity demanded falls.
The quantity demanded is always constant regardless of price changes.
The price of a good is independent of the quantity demanded.
Why does the demand curve slope downward?
Due to the substitution effect and the income effect.
Because consumers always prefer cheaper goods.
Because the quantity demanded always decreases with price.
Due to government regulations.
What is the substitution effect?
When prices rise, consumers replace expensive goods with cheaper alternatives.
When prices fall, consumers buy more expensive goods.
When consumers buy the same goods regardless of price changes.
When consumers stop buying goods altogether.
What is meant by 'elasticity' in the context of demand?
The degree to which demand responds to changes in price.
The flexibility of consumers to change their preferences.
The ability of a product to stretch in physical form.
The stability of demand regardless of price changes.
Which of the following goods is likely to have inelastic demand?
Gasoline
Fast food
Entertainment
Luxury cars
How does the income effect influence consumer behavior when prices fall?
Consumers feel as if their money has more buying power, leading them to purchase more.
Consumers feel poorer and buy less.
Consumers switch to more expensive alternatives.
Consumers save more money instead of spending.
What real-world implications does the Law of Demand have?
It influences pricing strategies, government policy, and consumer choices.
It only affects luxury goods and services.
It has no impact on government policy.
It is only relevant to academic studies.
If the price of sneakers falls from $100 to $80 and you buy more, is this a change in demand or a change in quantity demanded?
Demand
Quantity demanded
Neither
A shift in supply
If a TikTok trend makes everyone want the same sneakers, is this a change in demand or a change in quantity demanded?
Demand
Quantity demanded
Neither
Equilibrium
Why do economists say that price and quantity demanded move in opposite directions, and what real-world examples help prove this point?
Unit 2 – Supply & Demand
Day 2: Introduction to Supply
Textbook-Style
The Law of Supply
Just as consumers make choices based on prices, producers also respond to prices when deciding what to supply. The Law of Supply states that, all else being equal, when the price of a good or service increases, the quantity supplied increases. When the price falls, the quantity supplied decreases. Unlike demand, supply has a direct relationship—both variables move in the same direction.
Economists use graphs to illustrate this relationship. The supply curve slopes upward from left to right. Each point shows how much of a product producers are willing and able to sell at a given price. Higher prices motivate suppliers to produce more, while lower prices reduce their willingness to supply.
Why the Curve Slopes Upward
The logic behind this law is simple: producers want to earn profits. When prices rise, selling goods becomes more profitable, so businesses increase production. When prices fall, producing the same goods may no longer be worth the cost, so output shrinks. For example, if the price of strawberries rises, more farmers will plant and harvest strawberries. If prices drop, fewer farmers will choose to grow them.
Supply in Different Industries
Not all industries respond equally. Some, like agriculture, may take time to adjust because crops cannot be grown overnight. Others, like technology, can respond quickly to price signals. The responsiveness of supply to price changes is called elasticity of supply, a concept closely related to elasticity of demand and one we will explore in more detail later.
Real-World Implication
The Law of Supply explains why businesses expand when prices rise and why industries contract when prices fall. It helps economists and policymakers predict how producers will react to market changes, taxes, subsidies, and technological advances. Understanding this law is essential to analyzing how markets reach equilibrium.
Terms & Concepts Referenced
Law of Supply: When price rises, quantity supplied rises; when price falls, quantity supplied falls.
Direct Relationship: Both variables move in the same direction.
Supply Curve: An upward-sloping graph that shows supply at different prices.
Quantity Supplied: The specific amount of a good a producer is willing to sell at one price.
Elasticity of Supply: A measure of how responsive supply is to a change in price.
Change in Supply: When the entire supply curve shifts due to non-price factors.
Change in Quantity Supplied: Movement along the same curve due to a price change.
Real-World & Local Connection
Farmers’ Markets and Local Supply
In San Antonio, local farmers bring produce to markets each weekend. When the price of tomatoes is high, farmers bring more to sell, and new sellers may even enter the market. If prices drop, farmers may bring less or choose not to sell at all. The Law of Supply is visible in every stand lined with seasonal goods.
Fiesta Vendors and Pricing
During Fiesta, street vendors set up to sell turkey legs, aguas frescas, and crafts. If food prices are strong, more vendors join the festivities. If prices slump, some decide it’s not worth the effort. The higher the price they can charge, the more suppliers appear. When prices dip, supply shrinks.
Texas Energy as a Case Study
Oil and natural gas production in Texas is a major example of supply at work. When global oil prices rise, Texas producers drill more wells and increase production. When prices fall sharply, many companies reduce drilling or close operations. The supply of energy is driven heavily by the Law of Supply—profitability determines how much producers bring to market.
Clarifier / Remediation
Clearing Up Misconceptions About Supply
Students sometimes confuse supply with quantity supplied. Like demand, these are related but not identical. Supply refers to the entire curve—the relationship between price and the quantities producers are willing to sell at different prices. Quantity supplied refers to one point on the curve, or the specific amount supplied at one price.
👉 Example: If tacos sell for $2 each, a stand supplies 100 tacos. At $3 each, the stand supplies 200 tacos. The entire table of prices and quantities is supply. The single choice—“100 tacos at $2”—is quantity supplied.
Another misconception is that suppliers will always produce the same amount regardless of price. In reality, businesses adjust production levels based on profitability. If the price of materials or the product falls too low, suppliers reduce or stop production.
Finally, students often confuse changes in supply with changes in quantity supplied. A change in quantity supplied is a movement along the supply curve, caused by a price change. A change in supply means the entire curve shifts, often due to non-price factors such as technology, input costs, or taxes.
What does the Law of Supply state?
When the price of a good or service increases, the quantity supplied increases.
When the price of a good or service increases, the quantity supplied decreases.
When the price of a good or service decreases, the quantity supplied increases.
The quantity supplied is not affected by price changes.
How does the supply curve typically slope on a graph?
Upward from left to right
Downward from left to right
Horizontally
Vertically
Why do producers increase production when prices rise?
To earn more profits
To reduce costs
To decrease supply
To avoid taxes
What is the responsiveness of supply to price changes called?
Elasticity of supply
Elasticity of demand
Price flexibility
Supply curve
Which industry might take longer to adjust to price changes?
Agriculture
Technology
Automobile
Textile
What happens to industries when prices fall, according to the Law of Supply?
Industries contract
Industries expand
Industries remain unchanged
Industries become more profitable
Why is understanding the Law of Supply essential for economists and policymakers?
To predict how producers will react to market changes
To determine consumer preferences
To set fixed prices for goods
To eliminate taxes
If the price of tacos rises from $2 to $3 and a stand makes more tacos, is this a change in supply or a change in quantity supplied?
Supply
Quantity supplied
Neither
Demand
If new technology makes it cheaper to produce tacos at all prices, is this a change in supply or quantity supplied?
Supply
Quantity supplied
Neither
Equilibrium
Why does the supply curve slope upward, and how do producers respond differently to price changes in agriculture compared to energy?
Unit 2 – Supply & Demand
Day 3: Equilibrium in Markets
Textbook-Style
Market Equilibrium Explained
When supply and demand interact, they meet at a special point called equilibrium. Equilibrium is the price at which the quantity demanded by consumers equals the quantity supplied by producers. At this point, the market clears—there are no shortages and no surpluses.
The equilibrium price is also called the market-clearing price. If prices rise above equilibrium, consumers buy less, leaving unsold goods—a surplus. If prices fall below equilibrium, consumers want more than is available, creating a shortage. The constant push and pull between buyers and sellers naturally drives markets toward equilibrium.
Surpluses and Shortages
A surplus happens when the price is set too high. Producers bring more goods to market than consumers want to buy. To eliminate the surplus, sellers usually lower prices, moving the market back toward equilibrium.
A shortage occurs when the price is too low. Consumers demand more than producers are willing to supply. This often causes long lines, waiting lists, or even black markets. Prices tend to rise in response, moving the market back toward equilibrium.
The Invisible Hand
The idea that markets naturally move toward equilibrium without central planning was famously described by Adam Smith as the “invisible hand.” Buyers and sellers, each acting in their own self-interest, guide the market to balance supply and demand. This principle is central to understanding how free markets operate.
Terms & Concepts Reference
Equilibrium Price: The price at which quantity demanded equals quantity supplied.
Market-Clearing Price: Another name for equilibrium price.
Surplus: When quantity supplied is greater than quantity demanded at a given price.
Shortage: When quantity demanded is greater than quantity supplied at a given price.
Invisible Hand: Adam Smith’s concept that self-interest in markets leads to balance without central planning.
Scarcity vs. Shortage: Scarcity is the permanent condition of limited resources; shortages are temporary imbalances caused by prices being set too low.
Real-World & Local Connection
Concert Tickets in San Antonio
When a major artist comes to San Antonio, tickets often sell out quickly. If the ticket price is set too low, there is a shortage—more people want tickets than there are seats. On the resale market, prices climb until only those willing to pay more can buy. This secondary market pushes the ticket price closer to equilibrium.
Housing Market Example
In San Antonio, if rent is set below what the market can bear, more people want apartments than there are available units. This shortage drives competition among renters, often pushing rents higher until the market balances out. Conversely, if rents climb too high, landlords may find units sitting empty—a surplus—forcing them to reduce rent to attract tenants.
Food Trucks and Local Demand
During Fiesta, if food truck prices are too high, customers buy less and vendors may have extra food—a surplus. If prices are too low, long lines form and vendors run out of supplies—a shortage. In both cases, vendors adjust prices for the next day to move closer to equilibrium.
Clarifier / Remediation
Clearing Up Misconceptions About Equilibrium
Some students believe equilibrium is a fixed, permanent price. In reality, equilibrium can shift whenever supply or demand changes. For example, if more people move to San Antonio, demand for housing rises, shifting the equilibrium rent upward.
Another common misconception is thinking that shortages and surpluses mean markets are broken. In fact, they are signals. Surpluses tell producers to lower prices. Shortages tell producers to raise prices or increase production. These signals are what move the market back toward balance.
Finally, some confuse shortages with scarcity. Scarcity means resources are limited and is always present. Shortages happen when price is set below equilibrium and are temporary. Distinguishing these ideas is key to understanding markets.
What is the equilibrium price in a market?
The price at which quantity demanded equals quantity supplied
The price at which quantity supplied is greater than quantity demanded
The price at which quantity demanded is greater than quantity supplied
The price set by the government
What happens when the price is set above the equilibrium price?
A surplus occurs
A shortage occurs
The market remains in equilibrium
The invisible hand stops working
What is the 'invisible hand' as described by Adam Smith?
The self-interest in markets that leads to balance without central planning
A government intervention to control prices
A physical force that adjusts supply and demand
A tool used by economists to measure market performance
What is the difference between scarcity and shortage?
Scarcity is a permanent condition; shortages are temporary
Shortages are permanent; scarcity is temporary
Both are permanent conditions
Both are temporary conditions
What typically happens when there is a shortage in the market?
Prices tend to rise
Prices tend to fall
The government intervenes
The market remains unchanged
What is another name for the equilibrium price?
Market-clearing price
Surplus price
Shortage price
Government-set price
What causes a surplus in the market?
The price is set too high
The price is set too low
The government sets a price ceiling
There is an increase in consumer demand
If a concert sets ticket prices too low and they sell out immediately, what condition exists?
Surplus
Shortage
Equilibrium
Scarcity
If a farmer’s market charges too much for peaches and cannot sell them all, what condition exists?
Surplus
Shortage
Equilibrium
Scarcity
Why is equilibrium sometimes called the “market-clearing price,” and how do shortages and surpluses signal producers to adjust their behavior?
Unit 2 – Supply & Demand
Day 4: Shifters of Demand (Non-Price Determinants)
Textbook-Style
Understanding Shifts in Demand
So far, we have studied movements along the demand curve, caused only by changes in price. But in the real world, many other factors can increase or decrease demand, shifting the entire curve. These are called the determinants of demand or non-price factors. When demand shifts, the whole curve moves left (decrease in demand) or right (increase in demand), meaning that at every price, consumers are willing to buy less or more than before.
The Six Major Shifters of Demand
Income – When consumer income rises, demand for normal goods increases; when income falls, demand decreases. For inferior goods, the opposite is true.
Tastes and Preferences – Trends, fads, advertising, and culture can change what people want.
Prices of Related Goods – Substitutes and complements influence demand. If the price of Pepsi rises, demand for Coke may increase. If the price of hot dogs rises, demand for hot dog buns may decrease.
Expectations – If consumers expect prices to rise in the future, they may buy more now. If they expect a sale, they may delay purchases.
Number of Consumers – An increase in population or entry into a market raises demand. A decline lowers it.
Seasonal or External Events – Weather, holidays, and special events can temporarily change demand.
Shifts vs. Movements
A key point: A movement along the demand curve happens when the price changes. A shift of the demand curve happens when one of the six non-price determinants changes. This distinction is critical for analyzing markets accurately.
Terms & Concepts Reference
Determinants of Demand (Non-Price Factors): Income, tastes/preferences, related goods, expectations, number of consumers, seasonal events.
Normal Good: A good for which demand increases when income rises.
Inferior Good: A good for which demand decreases when income rises.
Substitutes: Goods that can replace each other. Example: Coke and Pepsi.
Complements: Goods that are consumed together. Example: Hot dogs and buns.
Shift of Demand Curve: When the entire demand curve moves due to non-price factors.
Movement Along the Curve: Change in quantity demanded caused by a change in price.
Real-World & Local Connection
Fiesta and Seasonal Demand
San Antonio’s Fiesta is a perfect example of how demand shifts. During Fiesta week, demand for decorations, food, and drinks spikes. Even if prices stay the same, more consumers are willing to buy more goods, shifting the entire demand curve to the right.
Housing Market in San Antonio
As more people move to San Antonio for jobs and military assignments, the number of consumers in the housing market rises. Even with no change in rental prices, demand for apartments and houses increases, shifting the demand curve outward.
Tech Trends and Preferences
When a new iPhone launches, demand for older models often falls while demand for the new model surges. Advertising and social trends drive tastes and preferences, shifting demand curves rapidly. In a city with strong tech culture like San Antonio, these trends ripple quickly through consumers.
Clarifier / Remediation
Clearing Up Misconceptions About Demand Shifters
One major misconception is confusing a shift with a movement. A movement happens when the price of the good changes. A shift happens when something other than price changes. For example, if the price of tacos falls, you buy more tacos—that’s a movement. But if your income rises and you decide to buy more tacos at every price, that’s a shift.
Another misconception is thinking all goods respond the same way to income changes. In reality, some goods are normal goods (demand rises with income) and others are inferior goods (demand falls when income rises). For instance, as people earn more, they may buy fewer instant noodles and more restaurant meals.
Finally, students often overlook the role of expectations. If H-E-B announces a major sale next week, consumers may hold off buying today, decreasing current demand even though prices haven’t changed yet.
What happens to the demand curve when consumer income rises for normal goods?
The demand curve shifts to the right
The demand curve shifts to the left
There is a movement along the demand curve
The demand curve remains unchanged
Which of the following is NOT a determinant of demand?
Price of the good
Income
Tastes and preferences
Number of consumers
If the price of Pepsi rises, what is likely to happen to the demand for Coke?
Demand for Coke increases
Demand for Coke decreases
Demand for Coke remains unchanged
There is a movement along the demand curve for Coke
What is the effect on demand if consumers expect prices to rise in the future?
Demand increases now
Demand decreases now
Demand remains unchanged
There is a movement along the demand curve
Which of the following is an example of a complement?
Hot dogs and buns
Coke and Pepsi
Tea and coffee
Bread and butter
What causes a movement along the demand curve?
Change in price
Change in income
Change in tastes and preferences
Change in number of consumers
What is the term for goods that can replace each other?
Substitutes
Complements
Normal goods
Inferior goods
If a new holiday trend causes more people to buy lights and decorations at all prices, what has happened?
Movement along the demand curve
Shift in demand
Change in quantity demanded
Surplus
If the price of hamburgers rises and people buy fewer hamburgers, what has happened?
Movement along the demand curve
Change in supply
Equilibrium
Why is it important to distinguish between a movement along the demand curve and a shift of the demand curve, and what local examples illustrate this difference?
