Suppose you were to sketch a graph of a market in which sellers have limited ability to adjust the amount they produce

Economics Dec 13, 2020

Suppose you were to sketch a graph of a market in which sellers have limited ability to adjust the amount they produce. What will the supply curve look like?

a) A steep positive slope

b) A flat positive slope

c) A slope exactly equal to 1

d) A negative slope

Expert Solution

The answer is a).

With price on the vertical axis, and quantity on the horizontal axis, the slope of a supply curve is calculated as:

changes in price / changes in quantity produced.

When sellers are not able to adjust the amount they produce, it follows that even for a large change in prices, the changes in quantity produced will be small. Therefore the ratio in the above equation will be large. In other words, the slope of the supply curve will be steep.

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