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IB Economics HL 2.2.1 Law of Supply Question Bank

Practise IB Economics HL 2.2.1 by explaining the positive price–quantity supplied relationship and supply functions.

Syllabus
First assessment 2022
Course
Economics HL
Level
HL

Exam points

  • Explain why a higher price can increase quantity supplied by improving the profit incentive for firms.
  • Interpret a positive price coefficient in a linear supply function as the law of supply.

2.2.1—Law of supply 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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