Practice Problems -- Supply

Not to be Turned In - For Your Own Study Use

ANSWERS - These answers are only explanations of how you should have drawn your graphs. 

You need to draw the graphs to get full credit.

Graphically show what will happen in each case (to supply or quantity supplied).  Remember to always assume ceteris paribus unless otherwise noted. Make sure you label your axes correctly !!

1.  Assume plastic is used to make Tupperware.  What will happen to the supply of Tupperware if the price of plastic decreases?

Answer:  The supply curve for Tupperware will shift to the right.  Plastic is a resource -- it's price went down so the suppliers can buy more plastic, and therefore produce more Tupperware.

2.  Assume a new technology is developed in producing radios.  What will happen to the supply of radios?

Answer:  The supply curve for radios will shift to the right.  By definition, a new technology will allow the suppliers to produce more radios at the same cost.

3.  Assume the wages of carpenters increases.  What will happen to the supply of houses? (Hint:  carpenters make houses - they are an input and you are the person that hires them).

Answer:  The supply curve for houses will shift to the left.  Carpenters are a resource -- their wages went up, therefore builders can't hire as many carpenters and therefore can't build as many houses.

4.  Assume black pens and green pens are substitutes in production.  What will happen to the supply of black pens if the price of green pens increases?

Answer:  The supply curve for black pens will shift to the left.  Since the price of green pens has increased, suppliers will want to produce more of them and get out of producing black pens (since green pens are more profitable now, ceteris paribus).

5.  Assume lumber and wood chips used in gardens are complements in production.  What will happen to the supply of wood chips if the price of lumber decreased?

Answer:  The supply curve for wood chips will shift to the left.  Since the two goods are produced together and the price of lumber decreased, the suppliers will produce less lumber and therefore (also) fewer wood chips.

6.  Assume the price of telephones increases.  What will happen to the quantity supplied of telephones?

Answer:  The supply curve for telephones will NOT shift since the variable changing is on an axis (the price of telephones has already been plotted along the supply curve).  Since the price of telephones is increasing, you would move along the supply curve and show with an arrow that you are increasing quantity supplied of telephones (→).

7.  Assume lemons are used to produce lemon pie.  Also assume that lemon pies and cherry pies are a substitutes in production.  What will happen to the supply or quantity supplied of lemon pies if the price of lemons increased and at the same time, the price of cherry pies increased?

Answer:  The supply curve for lemon pies will shift to the left since the price of lemons (a resource) has increased.  The supplier can't buy as many lemons (ceteris paribus) and therefore can't supply as many lemon pies.  Also, since the price of cherry pies has increased, the supplier will want to supply more cherry pies (since they are more profitable now, ceteris paribus), and will therefore move some or all of their production facilities out of lemon pies and into cherry pies.  The supply curve for lemon pies will shift to the left again.

8.  Assume a new technology is developed in the production of calculators.  Also assume that plastic is used to produce calculators.  What will happen to the supply or quantity supplied of calculators if the technology takes place and at the same time the price of plastic increases?

Answer: The supply curve for calculators will shift to the right since the new technology allows the producer to produce more calculators even when selling them for the same price (since technology lowers their costs of production).  However, the supply curve for calculators will also shift to the left since the price of plastic (a resource) has increased.  The supplier can't buy as much plastic (ceteris paribus) and therefore can't supply as many calculators.