Question

At a price of $12.59 per box of grapefruit, the supply is 595,000 boxes and the demand is 650,000 boxes. At a price of $13.19 per box, the supply is 695, 000 boxes and the demand is 590,000 boxes. Assume that the relationship between price and supply is linear and that the relationship between price and demand is linear.  What is the slope (m) of the supply curve?

	1.	-.006
	2.	-.01
	3.	.01
	4.	.006

Answer 1

We know that the slope of a line passing through the points (x₁,y₁) and (x₂,y₂) is (y₂-y₁)/(x₂-x₁). Here, the relationship between price and supply is linear . Also, at a price of $12.59 per box of grapefruit, the supply is 595,000 boxes and at a price of $13.19 per box, the supply is 695, 000 boxes . Let the equation of the supply curve be s = mp +b, where p is the unit price, m is the slope and b is the y-intercept.

Therefore, the slope of the supply curve, i.e. m = ( 695000-595000)/(13.19-12.59) = 100000/0.60 =166666.67 ( on rounding off to 2 decimal places).

The inverse supply equation, or price equation, treats price as a function g of quantity supplied i.e. P = f(S). Here, the slope of the inverse supply curve is 0.60/100000 = 0.000006.