BR4: Bridge: Supply
Question 1
The supply curve is upward-sloping because higher prices:
A. encourage customers to switch to substitute goods
B. make customers willing to pay more for a good
C. are needed to cover higher marginal costs
D. are needed to reflect higher marginal utility
Hint
Consider the law of decreasing marginal productivity and its implications for cost.Answer
C. are needed to cover higher marginal costs. A firm's upward-sloping supply curve reflects the assumption of diminishing marginal productivity, which in turn entails rising marginal cost. As a firm increases its output, and marginal cost rises, higher prices are needed to cover the higher marginal cost.Question 2
Which is most likely to shift the supply curve for pet grooming services leftward?
A. A rise in the price of pet grooming services
B. An increase in the cost of pet grooming supplies
C. A decrease in the number of owners taking their pets to be groomed
D. An increase in the number of pet groomers seeking employment
Hint
For each factor that is a determinant of supply, consider whether it shifts the supply curve leftward or rightward.Answer
B. An increase in the cost of pet grooming supplies. An increase in the cost of an input will reduce supply, shifting the supply curve leftward. Thus, an increase in the cost of pet grooming supplies will shift the supply curve for pet grooming services leftward.Question 3
If the government offers a tax deduction to companies producing solar panels, what will happen in the market for solar panels?
A. The supply curve will shift to the left, increasing supply.
B. The supply curve will shift to the right, increasing supply.
C. The supply curve will shift to the left, decreasing supply.
D. The supply curve will shift to the right, decreasing supply.
Hint
In effect, the tax change will change the marginal cost of producing solar panels.Answer
B. The supply curve will shift to the right, increasing supply. A tax deduction will decrease the marginal cost of producing solar panels. In effect, it is offsetting some of the actual costs of producing the solar panels. A decrease in marginal costs means that suppliers are willing and able to sell more solar panels at every price, an increase (rightward shift) of supply.Question 4
If the price of copper rises, which of the following may occur?
A. The government increases the copper content of pennies.
B. The profits of copper producers increase.
C. The quantity of copper supplied falls.
D. Thefts of copper wire decline.
Hint
Consider how a rise in the copper price would affect the incentives of various economic agents.Answer
B. The profits of copper producers increase. As profit equals total revenue minus total cost, a rise in price, all else equal, will lead to increased profits.Question 5
If more states legalize recreational marijuana, what is the likely effect on the supply of marijuana?
A. It would decrease as the risk of prosecution rises.
B. It would increase because prices will rise.
C. It would not change.
D. It would increase as the risk of prosecution falls.