Answer Key: Supply, Demand, and Market Equilibrium

Less is the intended answer (law of demand). Accept any sensible reason: "it costs more so I'd cut back," "I'd look for a substitute," "I can afford less." Warm-up — graded for effort.

More is the intended answer (law of supply). Accept any sensible reason: "I'd make more money per unit," "it's worth producing more," "higher price is an incentive to sell more." Graded for effort.

Downward line = demand (as price rises, quantity demanded falls). Upward line = supply (as price rises, quantity supplied rises). In Figure 1 the dashed line is demand and the solid line is supply.

Equilibrium price = $6; equilibrium quantity = 60 units. This is where the dashed demand line and the solid supply line cross in Figure 1 (the circled point, with dotted guides to $6 and to 60).

Price = $6, Quantity = 60. This is the one row where quantity demanded (60) equals quantity supplied (60). Full credit for identifying that the equilibrium is the row where the two quantities match (no shortage and no surplus). The graph and table agree.

Completed last column of Table 1:
$2 → shortage (demand 100 > supply 20; gap 80).
$4 → shortage (demand 80 > supply 40; gap 40).
$6 → equilibrium (60 = 60; neither).
$8 → surplus (supply 80 > demand 40; gap 40).
$10 → surplus (supply 100 > demand 20; gap 80).
At $4: a shortage of 40 units (80 − 40 = 40). Below-equilibrium prices give shortages; above-equilibrium prices give surpluses.

Equilibrium price: rises. Equilibrium quantity: rises. When demand increases the whole demand line shifts to the right, so it now crosses the upward supply line at a higher price and a higher quantity. Explanation credit for any correct link: at the old price buyers now want more than sellers offer (a temporary shortage), which bids the price up and draws out more quantity supplied until a new equilibrium is reached.

a) F — checkable in Table 1 / Figure 1 ($6 row: 60 = 60).
b) F — checkable in Table 1 ($2 row: 100 vs 20 is a shortage).
c) O — "fair" and "everyone should be happy" is a value judgment, not checkable.
d) O — "best thing anyone could ever spend money on" is a personal preference.
Fact = checkable against the data; opinion = a personal belief, preference, or value judgment.

Correct: B (not always). By the law of demand, a higher price lowers the quantity buyers actually buy, so total money (price × quantity sold) does not automatically rise. Above equilibrium the extra units become unsold surplus. Reject A (ignores that quantity falls) and C (the schedule clearly shows quantity demanded falling as price rises). Explanation must cite the schedule — e.g., at $6, 60 units sell; at $10, only 20 units are demanded, so raising the price to $10 does not simply "bring in more money." (If students compute revenue: $6×60 = $360 vs $10×20 = $200 at the quantity buyers actually want — a good extension, not required.)

The classmate is wrong. A change in the good's own price is only a movement along the existing demand line to a different point — it does not move the line. A shift of the whole demand line happens only when something other than that good's price changes (income, tastes, number of buyers, etc.). Full credit for distinguishing "same line, new point" (movement) from "the whole line relocates" (shift).

Claim: when demand rises, the equilibrium price rises (and equilibrium quantity rises too).
Sample: "Claim: When demand rises, the equilibrium price goes up. Evidence: In Figure 1 the demand line moves to the right, so it crosses the upward supply line at a higher point; in Table 1 the market clears at $6/60, but if buyers now want more at every price, the quantity demanded at $6 exceeds 60. Reasoning: At the old $6 price there is now a shortage, and a shortage pushes the price up; as price rises, quantity supplied increases along the supply line until a new, higher equilibrium price and quantity are reached."
Defensible alternates: accept reasoning framed through the rightward demand shift, through the temporary shortage at the old price, or through the graph's new crossing point — any is valid if it correctly concludes the price rises and cites both the graph and the table. Do not give full credit to "price falls," "price stays the same," or an answer that confuses a demand increase with a movement along the curve.
[BLOCK] extended writing: full block credit requires naming that at the old equilibrium price there is now a temporary shortage, explaining that the shortage bids the price up toward the new equilibrium, and stating that the equilibrium quantity also rises.

Equilibrium price: falls. Equilibrium quantity: rises. When supply increases the whole supply line shifts to the right, crossing the demand line at a lower price and a higher quantity. Reasoning with shortage/surplus: at the old price sellers now offer more than buyers want (a temporary surplus), which pushes the price down; as price falls, quantity demanded rises along the demand line until the new equilibrium is reached. Accept any answer that reaches "price down, quantity up" via a surplus at the old price. Do not credit "price rises."

Articulate: accept any accurate plain-language definition (e.g., "equilibrium is the price where the amount buyers want to buy equals the amount sellers want to sell — where the two lines cross; here $6 and 60 units").
Connect: a shortage row is $2 or $4 (demand > supply); a surplus row is $8 or $10 (supply > demand). Grade whether each cited price is correctly labeled.
Extend: any real product with a sensible supply- or demand-based reason (e.g., "concert tickets cost more when a lot of people want them" = demand; "phone prices drop when they're cheaper to make" = supply). More than one answer is defensible; grade the reasoning.

Look for: a downward demand line, an upward supply line, a marked equilibrium, a second demand line to the right, and a new equilibrium up and to the right of the first. Correct labels: price up, quantity up, with a one-sentence reason (the rightward demand shift raises both). Grade the labeling and reasoning, not drawing neatness.