IB Economics HL 2.2 Supply Question Bank

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.

The demand for a product in a perfectly competitive market is given by the function

while market supply is given by the function

where P is the price per unit in dollars ($), Qd is the monthly quantity demanded and Qs is the monthly quantity supplied in thousands of units.

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.

Explain the differences between economies of scale and the law of diminishing returns.

The following diagram illustrates the weekly demand for sunglasses in the town of Picton.

The market supply for sunglasses in Picton is given by the equation

where Qs is the quantity supplied per week and P is the price per pair of sunglasses in dollars ($).

Figure 1 illustrates the production possibilities for rice and pencils in Country H. Resources in Country H are fully employed.

Study the following extract and answer the questions that follow.
Canadian drywall tariffs will continue

(1) Recently imposed Canadian tariffs on drywall imports have pushed up the cost of building a new home by thousands of Canadian dollars (CA$) in the last four months. Drywall is a pre-made wall section that is used in the construction industry for building houses. Doubt as to whether the tariffs will remain is causing uncertainty for building firms, drywall manufacturers and homeowners.

(2) For now, higher prices will continue following a ruling by the Canadian International Trade Tribunal (CITT) this week. The tribunal found that United States (US) firms had been dumping drywall products into Western Canada over the past few years, harming the Canadian drywall industry.

(3) The ruling will end preliminary tariffs of up to 276 % imposed by Canada on imports of drywall from the US. However, they will be replaced by permanent, variable tariffs that would be imposed on imported drywall products whose prices fall below the minimum prices determined by the CITT.

(4) "The preliminary tariff was very damaging to homebuilding," said a building industry spokesperson. "Not just homebuilding, but hospitals, commercial buildings, indeed any new construction," he said. "It's a cost that someone had to pay for. It lowered the profits of house builders." It has been estimated that the immediate sharp increase in variable costs, following the imposition of the preliminary tariff, resulted in an extra CA$3000 to CA$5000 on the cost of building some homes.

(5) The preliminary tariffs were imposed after a dumping complaint by CertainTeed Gypsum Canada (CTGC), the last drywall manufacturer in Western Canada. CTGC has three major production sites and two gypsum quarries. Gypsum is a main component of drywall.

(6) A CTGC spokesperson had said previously that its plants and quarries could be closed, at the cost of 200 jobs, if the dumping of US drywall products continued. However, since the preliminary tariffs were imposed, the firm has announced that it has hired 30 new employees.

(7) In a separate report, the CITT found that the preliminary tariffs had been "substantially reducing competition" in Western Canada, to the detriment of Canada's homebuilders. In response, supporters of the tariff have suggested that revenue from the tariffs may be used to help areas that lost large numbers of homes and other structures in devastating forest fires.