Documented Problem Solving: Identifying a Change in Demand and Its Impact

Students will:

• know the determinants of demand and supply;
• demonstrate how a change in a determinant shifts the demand or supply curve;
• Analyze how equilibrium price is affected by a change in demand or supply.

This activity is meant primarily for Principles of Economics students, but it could be used for review in a more advanced economics course. In general, students should have a basic understanding of demand and supply, including graphical representations of each, in order to benefit from this activity.

For this activity, all that is needed is a MC or T/F question that requires critical thinking skills. Both are given below.

Ceteris paribus, if consumers decide that jeans with holes in them look really great, then the:
a) Demand for these jeans will increase and the equilibrium price will decrease.
b) Demand for these jeans will increase and the equilibrium price will increase.
c) Supply of these jeans will increase and equilibrium price will increase.
d) Supply of these jeans will decrease and equilibrium price will fall.

Answer: b


Ceteris paribus, if consumers decide that jeans with holes in them look really great, then the demand for these jeans will increase and the equilibrium price will increase.

Answer: True

Students must first be able to identify "tastes and preferences" as a determinant of demand. They sometimes want to jump ahead and conclude that because people desire more of something, producers will immediately produce more of it, making "tastes and preferences" a determinant of supply. In addition, students will need to understand that an increase in demand causes the demand curve to shift to the right. It is best if students draw a graph and let the graph demonstrate the change in equilibrium price and quantity. In many cases they want to guess rather than draw the graph.

Students are asked to write a documented problem solution to explain the process they used to answer the question. The solution should include details about the student's thought process. Student answers may be stated differently but should include the same logic.

In order to solve this problem, I first thought about the determinants of supply and demand. Since consumers have a preference for jeans with holes, there must be a change in a determinant of demand. I remembered that a change in the price of a good causes movement along the demand curve, but a change in a determinant causes a shift of the demand curve. In this case, since the preference for jeans with holes increases, there is an increase in demand. This was demonstrated in class by a rightward shift in the demand curve.

Next, I drew the initial demand and supply curves. I located the initial equilibrium price and quantity where the two curves intersect and labeled them P₁ and Q₁. Then I drew a new demand curve to the right of the initial demand curve. I found the new equilibrium price and quantity where the new demand curve intersects the supply curve. I labeled the new equilibrium points P₂ and Q₂. The new equilibrium price is greater than the initial equilibrium price.

Below is a rubric that can be used to assess student answers.

• Consumer preference for jeans with holes is a determinant of demand.
• A change in a determinant of demand shifts the demand curve.
• An increase in the preference for a good means that the demand curve will increase or shift to the right.
• The initial equilibrium price and quantity are identified on a graph where demand and supply intersect.
• A new equilibrium price and equilibrium quantity are established where the new demand curve and the existing supply curve intersect.
• The initial equilibrium price and the new equilibrium price are compared.
• The new equilibrium price is greater than the initial equilibrium price.

Angelo, T.A. and Cross, K.P. (1993). Classroom Assessment Techniques: A Handbook for College Teachers. San Francisco: Jossey-Bass.