Supply
Review and Applying the Principles (KEY) – Chapter 5
Review Questions (complete this on your own)
Identify a good that has an upwardsloping supply curve and identify a good
that has a vertical supply curve. (Do not
use the examples from the book, come up
with your own)
ANSWERS WILL VARY
Three months ago the price of a good
was $4, and the quantity supplied was
200 units. Today the price is $6, and the
quantity supplied is 400 units. Did the
quantity supplied rise because the price
increased, or did the price rise because
the quantity supplied increased (Which is
the cause and which is the effect)?
THE PRICE IS THE CAUSE,
AND THE RESPONSE IN
QUANTITY SUPPLIED IS
THE EFFECT
Suppose three McDonald’s
restaurants operate in your town, and
each pays its employees $6 per hour.
If McDonald’s started paying $9 per
hour to its employees, would more,
fewer or the same number of people
want to work for McDonald’s,
according to the law of supply?
Explain your answer in economic
terms.
HERE THE LAW OF
SUPPLY IS APPLIED TO
THE PRICE OF LABOR
AT McDONALD’S. IF IT
RISES FROM $6 TO $9
PER HOUR, THE LAW OF
SUPPLY PREDICTS THAT
MORE PEOPLE WILL
WANT TO WORK AT
McDONALD’S
Applying the Principles
Supply (Chapter 5, Section 1)
76. The two conditions of supply are WILLINGNESS and ABILITY to produce and sell.
77. The law of supply says that as the price of a good increases, the quantity supplied of the good
INCREASES.
78. The law of supply says that as the price of a good decreases, the quantity supplied of the good
DECREASES.
79. According to the law of supply, price and quantity supplied move in the SAME direction.
Supply Schedules and Supply Curves
The law of supply can be represented in numbers using a supply schedule or it can be represented as a graph
showing a supply curve.
Answer question 80 to illustrate the connection between a supply schedule and a supply curve.
80. Simon, an enthusiastic consumer of music downloads, has taken a keen interest in the industry. He
has started his own company, Simon, Inc., which manufactures premium mp3 players. Use the
supply shedule below to create asupply curve for Simon's company on the grid shown. Label the
curve S1.
SUPPLY SCHEDULE FOR SIMON, INC.
Price ($)
Quantity Supplied (units)
$100
200
$200
300
$300
400
$400
500
$500
600
$600
700
$700
800
Use the graph you created in question 8 to
answer questions 9-11.
81. The supply curve shows that at a price
of $300, Simon, Inc., will offer to sell
400 premium mp3 players, and at a
price of $600, the company will offer to
sell 700 premium mp3 players.
82. The company’s selling behavior demonstrates the law of SUPPLY.
83. The change in production of Simon, Inc., at different prices is a change in QUANTITY
SUPPLIED.
All producers do not supply the same amount of a good. Some are willing and able to supply
greater quantities than others are.
Use the information in question 84 to compare the supply curves of two different companies for the same
good.
84. Use the supply schedule below to create a supply curve for premium mp3 players for Carla, Inc.
Draw the graph on the grid in question 8. Label the curve S2.
SUPPLY SCHEDULE FOR CARLA, INC.
Price ($)
Quantity supplied (units)
$100
400
$200
500
$300
600
$400
700
$500
800
$600
900
$700
1,000
To answer questions 85-89, use the graph in question 80, which now shows the supply curves for both
Simon, Inc., and Carla, Inc.
85. The supply curve for Carla, Inc., (S2) is to the RIGHT of the supply curve for
Simon, Inc., (S1).
86. For each of the listed prices, Carla, Inc., is willing and able to produce MORE premium mp3
players than Simon, Inc., is willing and able to produce.
87. At each of the possible quantities, Carla, Inc., is willing to accept a LOWER price than Simon,
Inc., is willing to accept.
88. The supply curves you created on the grid in question 80 are FIRMS (INDIVIDUAL) supply
curves.
89. Suppose Simon, Inc., and Carla, Inc., are the only suppliers of premium mp3 players. How would
you create a market supply curve from the supply curves you drew on the grid in question 8?
THE MARKET SUPPLY CURVE WOULD BE THE SUM OF THE TWO INDIVIDUAL
SUPPLY CURVES. FOR EXAMPLE, THE MARKET SUPPLY CURVE WOULD
CONTAIN THE POINT REPRESENTING A PRICE OF $100 AND A QUANTITY
SUPPLIED OF 600 UNITS (200 UNITS FROM SIMON, INC + 400 UNITS FROM
CARLA, INC)
Price
Vertical Supply Curves
As shown in the figure to the right, a supply curve is vertical when the
quantity supplied cannot increase regardless of the price. For instance, the
number of tickets available for this season's Super Bowl is finite because
the stadium has a fixed number of seats. A vertical supply curve
illustrates that at any price, the quantity supplied remains the same.
90. List three other goods that would have vertical supply curves.
ANSWERS WILL VARY
S1
0
Quantity Supplied
Review Questions (complete this on your own)
Identify what happens to a given supply
curve as a result of each of the
following…
In each of the following cases, identify
whether the supply of the good is elastic,
inelastic, or unit-elastic…
Resources prices fall:
The price of books increases from 10%
and the quantity supplied of books
increases 14%
SHIFTS TO THE RIGHT
ELASTIC
What factor(s) cause(s) movement
along a supply curve?
PRICE IS THE FACTOR
THAT CAUSES
MOVEMENT ALONG A
SUPPLY CURVE
Technology advances:
SHIFTS TO THE RIGHT
A quota is repealed:
SHIFTS TO THE RIGHT
The price of bread increases 2% and the
quantity supplied of bread increases 2%.
UNIT-ELASTIC
A tax on the production of a good is
repealed:
SHIFTS TO THE RIGHT
The price of telephones decrease 6% and
the quantity supplied of telephones
decreases 8%.
ELASTIC
Applying the Principles
The Supply Curve Shifts (Chapter 5, Section 2)
91. If supply increases, the supply curve shifts RIGHT (right or left), meaning that sellers want to sell MORE
(more or less) of a good at each and every price.
92. If supply decreases, the supply curve shifts LEFT (right or left), meaning that sellers want to sell LESS
(more or less) of a good at each and every price.
In questions 93-100, The factors that cause supply curves to shift are listed. For each factor, fill in the blanks
to describe how the factor affects the supply of a good (whether the factor causes supply to rise or to fall).
93. Factor: Resource Prices
Description:
If resources prices fall, supply RISES (rises of falls) and the supply curve shifts to the RIGHT (right or
left).
If resources prices rise, supply FALLS (rises or falls) and the supply curve shifts to the LEFT (right or
left).
94. Factor: Technology
Description:
Advancements in technology reduce per-unit costs. Supply RISES (rises or falls) and the supply curve
shifts to the RIGHT (right or left).
95. Factor: Taxes
Description:
Higher taxes make production more expensive so supply FALLS (rises or falls) and the supply curve shifts
to the LEFT (right or left).
Lower taxes shift the supply curve to the RIGHT (right or left).
96. Factor: Subsidies
Description:
Subsidies make production less expensive so supply RISES (rises or falls) and the supply curve shifts to
the RIGHT (right or left).
If a subsidy is removed, the supply curve shifts to the LEFT (right or left).
97. Factor: Quotas
Description:
Quotas DECREASE (increase or decrease) supply and shift the supply curve to the LEFT (right or left).
If a quota is eliminated, the supply curve shifts to the RIGHT (right or left).
98. Factor: Number of Sellers
Description:
If the number of sellers increases, supply RISES (rises of falls) and the supply curve shifts to the RIGHT
(right or left).
If the number of sellers decrease, supply FALLS (rises or falls) and the supply curve shifts to the LEFT
(right or left).
99. Factor: Future Price
Description:
If sellers expect the price of a good to rise in the future, they may withhold the good from the market and
wait to get the higher price. In this case, supply FALLS (rises or falls) and the supply curve shifts to the
LEFT (right or left).
If sellers expect the price of a good to fall in the future, they may supply more of the good now to get the
higher price. In this case, supply RISES (rises or falls) and the supply curve shifts to the RIGHT (right or
left).
100. Factor: Weather
Description:
Bad weather can reduce the supply of agricultural goods and the supply curve shifts to the LEFT (right or
left).
Good weather can increase the supply of agricultural goods and the supply curve shifts to the RIGHT
(right or left).
Supply is not the same as quantity supplied. Answer questions 101-104 on the lines provided.
101. What will cause a change in the supply of a good?
RESOURCE PRICES
TECHNOLOGY
SUBSIDIES
QUOTAS
FUTURE PRICE
WEATHER
TAXES
NUMBER OF SELLERS
102. What will cause a change in the quantity supplied of a good?
A CHANGE IN THE PRICE
103. How is a change in supply represented on a graph? THE ENTIRE CURVE SHIFTS TO THE RIGHT
OR LEFT
104. How is a change in quantity supplied represented on a graph?
MOVEMENT ALONG THE CURVE
In questions 105-113, fill in the blanks to describe how each event will affect the country's total supply of corn
and then graph the result.
Will the supply of corn increase, decrease, or stay the same? INCREASE
In which direction will the supply curve shift? RIGHT
Price
105. The U.S. government increases the subsidy for corn production.
Which of the eight factors causes the shift? SUBSIDIES
S1
0
S2
Quantity Supplied
106. A major drought destroys crops in America's heartland.
In which direction will the supply curve shift? LEFT
Price
Will the supply of corn increase, decrease, or stay the same? DECREASE
Which of the eight factors causes the shift? WEATHER
S1
S2
0
Quantity Supplied
107. The price of fuel used in farm machinery increases to a new high.
In which direction will the supply curve shift? LEFT
Price
Will the supply of corn increase, decrease, or stay the same? DECREASE
Which of the eight factors causes the shift? RESOURCE PRICES
S2
S1
0
Quantity Supplied
108. The U.S. government places a quota on all imported farm products.
In which direction will the supply curve shift? LEFT
Price
Will the supply of corn increase, decrease, or stay the same? DECREASE
Which of the eight factors causes the shift? QUOTAS
S2
S1
0
Quantity Supplied
109. A newly developed seed increases the corn yield.
In which direction will the supply curve shift? RIGHT
Price
Will the supply of corn increase, decrease, or stay the same? INCREASE
Which of the eight factors causes the shift? TECHNOLOGY
S1
0
S2
Quantity Supplied
110. As property values rise, many farm fields are turned into housing developments and
shopping malls.
In which direction will the supply curve shift? LEFT
Price
Will the supply of corn increase, decrease, or stay the same? DECREASE
Which of the eight factors causes the shift? NUMBER OF SELLERS
S2
0
S1
Quantity Supplied
111. The U.S. government gives farmers a tax cut by allowing them to deduct most
Will the supply of corn increase, decrease, or stay the same? INCREASE
Price
expenses.
In which direction will the supply curve shift? RIGHT
S1
S2
Which of the eight factors causes the shift? TAXES
0
Quantity Supplied
112. Corn prices are expected to rise next month as more ethanol refineries start
Will the supply of corn increase, decrease, or stay the same? DECREASE
In which direction will the supply curve shift? LEFT
Price
production.
S2
Which of the eight factors causes the shift? FUTURE PRICE
0
S1
Quantity Supplied
113. Chocolate-covered corn on a stick becomes a new fad at state fairs.
In which direction will the supply curve shift? SUPPLY WILL NOT CHANGE
Price
Will the supply of corn increase, decrease, or stay the same? STAY THE SAME
Which of the eight factors causes the shift? PREFERENCES (DEMAND, NOT SUPPLY)
S1
0
Quantity Supplied
Elasticity of Supply
Elasticity of supply is a measure of how much the quantity supplied of a good rises or falls owing to a change in the
price of the good.
114. When quantity supplied changes by a larger percentage than price, supply is ELASTIC.
115. When quantity supplied changes by a smaller percentage than price, supply is INELASTIC.
116. When quantity supplied changes by the same percentage as price, supply is UNIT-ELASTIC.
Elasticity Versus Inelasticity
In each of the cases described in questions 117-119, identify whether the supply of the good is elastic, inelastic, or
unit-elastic.
ELASTICITY = % Change in Quantity Supplied
% Change in Price
117. UNIT-ELASTIC _____ The price of textbooks increases by 20 percent, and the quantity supplied of
textbooks rises 20 percent.
118. INELASTIC _________ The price of jeans increases by 5 percent, and the quantity supplied of
jeans increases by 3 percent.
119. ELASTIC ___________ The price of televisions increases by 15 percent, and the quantity supplied of
televisions increases by 25 percent.
Price
Price
In questions 120 and 121, use your understanding of elasticity of supply to decide whether the graph shows a
good with elastic supply or a good with inelastic supply.
S1
0
Quantity Supplied
120. INELASTIC
S1
0
Quantity Supplied
121. ELASTIC