Linear Supply Functions

Paper 3 - HL
Learning Outcomes
Explain a Supply Function in the form Qs=c+d(P)
Plot a Supply curve from a Linear Function
Identify that d is the slope of the Supply Function -
Qs=c+d(P)
Outline why, if c changes, there will be a shift in the
Supply Curve
Outline how the steepness of the Supply Curve is
affected by a change in d.
Supply Function
Qs = c + d(P)
Qs = Quantity Supplied
c = quantity produced at a price of 0
d = represents the sensitivity of Producers to
changes in price
Qs = -250 + 100P
1. Calculate the
Supply Schedule for
Espresso coffee.
2. Calculate the Price
when the Quantity
Supplied is 0.
0
1
2
3
4
5
6
Price Quantity Supplied
Qs = -250 + 100P
Price Intercept
Qs = -250 + 100P
0 = -250 + 100P
250 = 100P
P = $2.50
Graph the Function
0 -250
1 -150
2 -50
3 50
4 150
5 250
6 350
Price Quantity Supplied
Qs = -250 + 100P
Change in c occur when there is a change in
a non-price determinant.
A favorable growing season had increases
the supply of coffee. c = -50
1. Write the new Supply Function.
2. Calculate the new Supply schedule
3. At what price will firms begin to consider selling
Espresso now.
4. Graph it with the original function.
Qs = -250 + 100P
1. Qs = -50 + 100P
3. Qs = -50 + 100P
0 = -50 + 100P
50 = 100P
P = $.50
0 -50
1 50
2 150
3 250
4 350
5 450
6 550
Price Quantity
Supplied
Qs = -250 + 100P
Originally for every $1 increase in price, Producers would
supply 100 espressos.
Assume the Producers are more responsive/sensitive to
price change. In other words they are willing to supply
more to the market as price increases.
Now every $1 price increase, Producers will Supply 150
espressos.
Qs = -250 + 150P
The new Supply Function is
Qs = -250 + 150P
Calculate the new Supply schedule & graph.
What do you notice about the new Supply curve in relation
to the old curve? Does this make sense? Explain.