Q: Which equation best represents the relationship between price and quantity supplied on a supply curve?

$$Q_s = f(P)$$, \\text{ where } Q_s \\text{ is quantity supplied and } P \\text{ is price}$

Question 1

Which of the following best describes the Law of Supply?

Accepted Answer

If the price of a product or service rises, the quantity supplied increases.

Question 2

A business must pay higher prices to obtain more of an input because:

Accepted Answer

Opportunity costs change with circumstances.

Question 3

Which of the following is NOT considered an opportunity cost when making a forward-looking business decision?

Accepted Answer

A sunk cost that cannot be recovered.

Question 4

Suppose you have just paid your bus fare, and a friend offers you a ride. According to economic reasoning, what should you consider when deciding whether to stay on the bus or take the ride?

Accepted Answer

Only the additional benefits and additional opportunity costs of each option.

Question 5

If a business increases production, what happens to marginal opportunity cost?

Accepted Answer

Marginal opportunity cost increases.

Question 6

Which of the following would cause a rightward shift in the supply curve for a product?

Accepted Answer

An improvement in technology.

Question 7

Given the following production possibilities for piercings and tattoos:

A: 15 piercings, 0 tattoos
B: 14 piercings, 1 tattoo
C: 12 piercings, 2 tattoos
D: 9 piercings, 3 tattoos
E: 5 piercings, 4 tattoos
F: 0 piercings, 5 tattoos

What is the marginal opportunity cost of producing the third tattoo?

Accepted Answer

$$3$$

Question 8

Which of the following statements about sunk costs is correct?

Accepted Answer

Sunk costs do not influence smart, forward-looking decisions.

Question 9

If the price of a related product falls, what is the likely effect on the supply of the original product?

Accepted Answer

Supply of the original product increases.

Question 10

Which equation best represents the relationship between price and quantity supplied on a supply curve?

Accepted Answer

$$Q_s = f(P)$$, \text{ where } Q_s \text{ is quantity supplied and } P \text{ is price}$

Question 11

A supply curve can be read in two ways. What does reading 'up-and-over' from quantity supplied to price represent?

Accepted Answer

The marginal cost curve.

Question 12

If the price of an input used in production falls, what happens to the supply curve?

Accepted Answer

It shifts to the right.

Question 13

Which of the following is true about market supply?

Accepted Answer

It is the sum of the supplies of all businesses willing to produce a particular product or service.

Question 14

Suppose the marginal opportunity cost of producing additional tattoos increases as more tattoos are produced. What does this imply about the production process?

Accepted Answer

Inputs are not equally productive in all activities.

Question 15

Which of the following would NOT cause a change in supply?

Accepted Answer

A change in the price of the product.

Question 16

If the supply curve for tattoos shifts to the right, which of the following could be a possible explanation?

Accepted Answer

A new technology made tattooing faster and cheaper.

Question 17

A business faces the following marginal opportunity costs for producing tattoos (in terms of piercings given up): 1 for the first tattoo, 2 for the second, 3 for the third, 4 for the fourth, and 5 for the fifth. What is the total opportunity cost of producing 3 tattoos?

Accepted Answer

$$1 + 2 + 3 = 6$$

Question 18

Which of the following best explains why marginal opportunity cost increases as more of a good is produced?

Accepted Answer

Resources are not equally productive in all activities.

Question 19

If a business expects the future price of its product to fall, what is the likely effect on current supply?

Accepted Answer

Current supply will increase.

Question 20

Which of the following is the correct definition of marginal cost?

Accepted Answer

The additional opportunity cost of increasing quantity supplied by one unit.

The Law of Supply: Marginal Opportunity Costs, Sunk Costs, and Changes in Supply

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