Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
The following graph shows the supply of a good.
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Region
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Elastic
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Inelastic
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| Between W and X |
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| Between Y and Z |
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True or False: For high levels of quantity supplied where firms have reached near maximum capacity, supply becomes less elastic because firms may need to invest in additional capital in order to increase production further.
True
False
Transcribed Image Text:### Supply Curve Analysis
#### Graph Explanation:
This graph illustrates a typical supply curve for a certain good, showcasing the relationship between the price of the good and the quantity supplied. The X-axis represents the quantity of goods (in units), and the Y-axis represents the price per unit (in dollars).
#### Key Points on the Graph:
1. **Supply Curve (Orange Line)**:
- The orange line represents the supply curve. This curve demonstrates how the quantity supplied changes with varying prices. As the price increases, suppliers are willing to supply more units.
2. **Labeled Points**:
- **Point W**:
- **Coordinates**: (8, 40)
- **Interpretation**: At a price of $40 per unit, 8 units are supplied.
- **Point X**:
- **Coordinates**: (20, 40)
- **Interpretation**: At the same price of $40 per unit, the quantity supplied remains considerably low at 20 units, showing the initial flat nature of the supply curve.
- **Point Y**:
- **Coordinates**: (64, 180)
- **Interpretation**: At a price of $180 per unit, the quantity supplied increases significantly to 64 units.
- **Point Z**:
- **Coordinates**: (72, 360)
- **Interpretation**: At a high price of $360 per unit, the supply is maximized with 72 units being provided.
#### Analysis:
- The supply curve starts with a relatively flat section, indicating that a price increase from $40 has a modest effect on the quantity supplied initially.
- As the price continues to rise, seen from point Y to Z, the supply curve becomes steeper. This steeper region indicates that higher prices strongly incentivize suppliers to increase the quantity supplied.
- The upward slope of the supply curve reflects the law of supply, which states that all else being equal, an increase in price results in an increase in the quantity supplied.
This graph is helpful for understanding how suppliers respond to price changes within a market, illustrating the fundamental economic principle that higher prices will typically lead to an increased quantity of goods being supplied.
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