Question

Suppose the supply curve for paper clips is given as P = -10 + 2Q.

Which one of the statements below is true?

a)The graph of supply is horizontal form Q=0 to Q=5 units.

b)The graph of supply is horizontal from Q=0 to Q=10 units.

c)There will be nothing supplied unless the market price is at least $5.

d)This supply curve violates the law of supply.

e)The graph of supply is vertical from a price of $0 to a price of $5.

Answer 1

The correct answer is (d) this supppy curve violated the law of supppy. This is because the intercept term of the supply curve is always positive for the normal supply curve drawn under the assumptions of laws of supply. As we can observe, the intercept term here is negative. Hence, this supply curve violates the law of supply.

Other options are incorrect because if we put the values of Q as 0, 1, 2, 3 and so on, we can observe that the supply curve is neither horizontal nor vertical. It will start from the negative y axis and then move upwards towards the positive x axis, clearly vioalting the law of supply and proving the other options as incorrect.