IB Economics HL 2.2 Supply Question Bank

Evaluate supply changes using precise diagrams, assumptions and evidence to explain cost, price, quantity and producer effects.

Exam points

Analyse supply curves and movements using price, quantity supplied and ceteris paribus assumptions.
Explain diminishing marginal returns and rising marginal costs behind the upward supply curve.
Evaluate supply shifts from costs, taxes, subsidies, technology, expectations and firm numbers.

Covered syllabus points

2.2.1—Law of supply 2.2.2 (HL)—Assumptions behind supply 2.2.3—Supply curve 2.2.4—Individual and market supply 2.2.5—Non-price determinants of supply 2.2.6—Movements and shifts in supply

[Maximum number: 6]

Note that widgets are an imaginary product.

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

\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

(a)

Identify the slope of the supply curve.

[ 1 ]

(b)

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:

Q s_{1}=-60+3 P

[ 2 ]

(c)

Draw and label the new supply curve on Figure 1.

[ 1 ]

(d)

Using your answer to part (c), outline the reason why an increase in costs of production has resulted in a new supply function.

[ 2 ]

[Maximum number: 4]

Firm A produces cartons of coffee. Figure 1 illustrates the firm's total cost (TC) and variable cost (VC) at different output levels per month.

Figure 1

Explain why in the short run, as output increases, marginal costs typically decrease and then increase.

The price of tea in the perfectly competitive tea market is presently $\$ 21$ per can.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

For a limited explanation that marginal product initially tends to increase but then because of a fixed input (factor), diminishing returns cause MP to fall.

OR

MP falls because of a fixed input, which increases the additional costs of one more unit, and so MC increases.

Marking guidance:

Allow [1] mark only if "productivity" used instead of MP or if fixed input not mentioned.

An algebraic response (see below) without any reference to The Law of Diminishing Marginal Returns may be awarded a maximum of [2] marks.

2

The written response is accurate.

3-4

For explaining that marginal product initially tends to increase, due to specialization, but then because of a fixed input (factor) that has to be shared, diminishing returns cause MP to fall.

AND EITHER

as MP falls, the additional costs of one more unit of output will begin to increase and so MC increases.

OR
$\mathrm{MC}=\frac{\Delta \mathrm{VC}}{\Delta \mathrm{Q}}=\frac{\Delta(\mathrm{wL})}{\Delta \mathrm{Q}}=\mathrm{w}\left(\frac{\Delta \mathrm{~L}}{\Delta \mathrm{Q}}\right)=\mathrm{w}\left(\frac{1}{\mathrm{MP}}\right)$

so, if MP increases, then MC will decrease and, when MP decreases (as a result of the LoDMRs), then MC will increase.

[Maximum number: 5]

(a)

Using a fully labelled diagram, outline the relationship between marginal product (MP) and average product (AP) of labour.

Figure for Question (a) — IB Economics HL

The market for corn on the island of Nissos is perfectly competitive. The demand and supply for corn in Nissos are given by the functions

\begin{aligned} & Q d=10-0.5 P \\ & Q s=-2+P \end{aligned}

where Q d is the quantity of corn demanded per month in millions of kilograms ( kg ), Q s is the quantity of corn supplied per month in millions of kg and P is the price per kg of corn in dollars ($).

[ 4 ]

(b)

Determine the slope of the market supply function for the corn farmers in Nissos.

[ 1 ]

All question bank results loaded

Covered syllabus points

2.2 Supply question 1

Question (a)

Question (b)

Question (c)

Question (d)

2.2 Supply question 2

2.2 Supply question 3

Question (a)

Question (b)