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IB Economics HL 2.2.1 Law of Supply Questions

Revise IB Economics HL 2.2.1 by explaining the positive price–quantity supplied relationship through profit incentives, marginal cost and supply functions.

Syllabus
First assessment 2022
Course
Economics HL
Level
HL

Exam points

  • Explain the law of supply as a usually positive relationship between price and quantity supplied, ceteris paribus.
  • Link a higher price to greater profit margins, rising marginal costs and a stronger incentive for firms to offer more output.
  • Interpret a positive price coefficient in a linear supply function as evidence of the law of supply.

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Study 2.2.1—Law of supply conceptsOpen the corresponding Concept lesson for explanations, examples and exam connections.

IB Economics HL 2.2.1 Law of Supply Questions question 1

[Maximum number: 2]

Note that widgets are an imaginary product.

In Country X, the supply and demand for widgets are given by the functions

Qs=−45+4.5PQd=180−3P\begin{aligned} & Q s=-45+4.5 P \\ & Q d=180-3 P \end{aligned}

where P is the price per widget in dollars ($), Qs is the quantity of widgets supplied (thousands per year) and Q d is the quantity of widgets demanded (thousands per year).

The supply ( S ) and demand ( D ) functions are represented in Figure 1.

Figure 1

Figure 1

Outline the reason why the quantity supplied increases as the price rises.

An increase in costs of production has resulted in a new supply function:

Qs1=−60+3PQ s_{1}=-60+3 P
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