Problem :
Tom's supply equation for selling handmade mugs is as follows:
Q = 5 + 1.5P
How many mugs will he sell if the price is $2 a mug? What if the price
is $4 a mug?
To find out how many mugs Tom is willing to supply, we simply plug in the price
into Tom's supply equation. When the price is $2 a mug, we find that
Q = [5 + 1.5(2)] = 8 mugs
When the price is $4 a mug, Tom is willing to sell
Q = [5 + 1.5(4)] = 11 mugs
Problem :
Tom's supply equation for his handmade mugs is now:
Q = -5 + 2P
At what price will he no longer be willing to sell mugs?
Tom's supply equation is
Q = -5 + 2P
To find the price at which Tom will no longer sell any mugs, we set Q
equal to 0 and solve for P. That is:
0 = -5 + 2P
P = 5/2 = $2.50
Tom will not sell any mugs if the price drops to $2.50 a mug.
Problem :
If Jean's supply curve for babysitting looks like this:
Jean's Supply Curve
What is the minimum amount you would have to pay her if you wanted her
to babysit for 2 hours? 5 hours? (Remember that wage is the hourly
rate of pay).
If we look for Jean's minimum wage at 2 hours on the graph, we find
that it is $4. Since $4 is only the hourly pay, you have to multiply it
by the number of hours worked to see how much you actually have to pay
Jean. For 2 hours of babysitting, you will have to pay Jean at least
(2 hours) x ($4/hour) = $8
Similarly, to get Jean to work for 5 hours, you have to pay her at least
$8 an hour, giving a total pay of
(5 hours) x ($8/hour) = $40
Jean's Supply Curve
Problem :
Jeff and Luke both sell baseball cards. Jeff's supply function is
Q = 2P
Luke's supply function is
Q = -5 + 3P
If you wanted to buy 50 cards total, how much would you have to offer
per card? At what price will Jeff no longer sell any cards? At what
price will Luke no longer sell any cards?
To find out how much you would need to pay to get 50 cards, you first
need to combine Jeff and Luke's supply functions by adding them
together:
Now we set Q equal to 50, since we want to buy 50 cards, and we get:
50 = -5 + 5P
Solve for P, and get
P = 55/5 = $11 a card
To find Jeff's no-sell price, we set Q equal to 0 in his supply function
and solve for P.
0 = 2P
In this case, we find that Jeff's no-sell price is $0.
We do the same thing for Luke, plugging 0 in for the quantity in his
supply equation:
0 = -5 + 3P
P = 5/3 = $1.67 per card
Problem :
Jody owns a used CD store, where she buys and sells used CDs. Which
of the following will cause a movement along her supply curve, and which
will cause a shift in her supply curve?
a) Another CD store opens down the street that also buys used CDs, so
she now has to pay more for the used CDs before she can sell them again.
b) The landlord now includes utilities in her rent payment, so she no
longer has to pay for electricity.
c) There is an Elvis revival, and the market price of used Elvis CDs
goes up.
a) This will cause an inwards shift (a shift towards the y-axis) of
Jody's supply curve. Because she has to pay more for each CD, she makes
less profit on each sale. This means that for any given price, she will
be willing to sell fewer CDs.
b) This will cause an outwards shift (a shift away from the y-axis) of
Jody's supply curve. Because she no longer has to pay for electricity
in her store, Jody's costs are lower, and so she will be willing to sell
more CDs at any given price.
c) This causes a movement up the supply curve. Because the market
price of used Elvis CDs has gone up, she will be willing to sell more
CDs.
