Q2. The figure below shows the suppl... [FREE SOLUTION]

Chapter 3: Q2. (page 66)

The figure below shows the supply curve for tennis balls, S1, for Drop Volley Tennis, a producer of tennis equipment. Use the figure and the table below to give your answers to the following questions.
a. Use the figure to fill in the quantity supplied on supply curve S1 for each price in the following table.
b. If production costs were to increase, the quantities supplied at each price would be as shown by the third column of the table (鈥淪2 Quantity Supplied鈥�). Use those data to draw supply curve S2 on the same graph as supply curve S1.
c. In the fourth column of the table, enter the amount by which the quantity supplied at each price changes due to the increase in product costs. (Use positive numbers for increases and negative numbers for decreases.)
d. Did the increase in production costs cause a 鈥渄ecrease in supply鈥� or a 鈥渄ecrease in quantity supplied?鈥� Explain.
Price($) S1
Quantity Supplied S2
Quantity
Supplied Change in Quantity Supplied (S2-S1)
3 - 4 -
2 - 2 -
1 - 0 -

Short Answer

Expert verified

a. The quantity supplied, which is denoted by, at different prices, is given in the table below:

Price($)	S1 Quantity Supplied	S2 Quantity Supplied	Change in Quantity Supplied (S2-S1)
3	15	4	-
2	10	2	-
1	5	0	-

Diagram for S2:

c. The change in the quantity supplied is shown in the fourth column of the table given below:

Price($)	S1 Quantity Supplied	S2 Quantity Supplied	Change in Quantity Supplied (S2-S1)
3	15	4	-11
2	10	2	-8
1	5	0	-5

d.An increase in production decreases the supply of the good at each price as the producer鈥檚 profit decreases.

Step by step solution

Explanation of part (a)

The supply curve shows the quantity supplied on the x-axis and price on the y-axis. You can determine the quantity supplied at each price level using the given supply curve and fill the table accordingly. For example, the curve shows a quantity of 15 units on the x-axis when the price on the y-axis is $3. Similarly, the quantity is 10 units when the cost is $2 and 5 units when the price is $1.

The filled table for :

Price($)	S1 Quantity Supplied	S2 Quantity Supplied	Change in Quantity Supplied (S2-S1)
3	15	4	-
2	10	2	-
1	5	0	-

Explanation to part (b)

The supply curve gives the relation between the price of a good or service and the quantity of the good or service that the sellers are ready to sell at the respective prices. You can draw the supply curve S2 using the quantity supplied in the third column in the given table as value for x-coordinate and price (first column) as y-coordinate value.

Price($)	S1 Quantity Supplied	S2 Quantity Supplied	Change in Quantity Supplied (S2-S1)
3	15	4	-
2	10	2	-
1	5	0	-

Thus, you get the following curve:

The three coordinates on the supply curve show:

Quantity supplied is 0 units when the price is $1,
Quantity supplied is 2 units when the price is $2
Quantity supplied is 4 units when the price is $3.

Explanation to part (c)

The changes in the quantity supplied due to the increased cost of production can be calculated by subtracting the S2 supply at each price from the S1 supply at that price. The change in quantity demanded will be -11(4-15),-8(2-10), and -5 ( 0-5) due to a change in price from $3 to $2 and then to $1. The negative numbers show the fall in supply due to increased costs.

Price($)	S1 Quantity Supplied	S2 Quantity Supplied	Change in Quantity Supplied (S2-S1)
3	15	4	-11
2	10	2	-8
1	5	0	-5

Explanation to part (d)

An increase in production cost decreases the incentives of a seller to supply the good. Higher cost at the same price means lower profit and low supply. The diagram explains the effect on supply due to higher costs.

The shift of the supply curve is backward, as shown in the diagram below, based on the values given in the question for $S_{1}$ and $S_{2}$ . This is a decrease in supply and not the quantity supplied as the price is constant.