Question 1:

Briefly explain whether each of the following statements describes a change in supply or a change in the quantity supplied.

a. To take advantage of high prices for snow shovels during a very snowy winter, Alexander Shovels, Inc., decides to increase output.

b. The success of Red Bull leads more firms to begin producing energy drinks.

c. In the six months following Hurricane Katrina in 2005, production of oil in the Gulf of Mexico declined by 25 percent.

Question 2:

An article in the Wall Street Journal notes that during early 2009 the demand for Internet advertising was declining at the same time that the number of Internet sites accepting advertising was increasing. After reading the article, a student argues: "From this information, we know that the price of Internet ads should fall, but we don't know whether the total quantity of Internet ads will increase or decrease." Is the student's analysis correct? Illustrate your answer with a demand and supply graph.