Practise explaining the positive price–quantity supplied relationship through profit margins, producer incentives and rising marginal costs in supply functions.
Note that widgets are an imaginary product.
In Country X, the supply and demand for widgets are given by the functions
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
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: