The Inverse Supply Function in Economics: Understanding Price and Quantity Supplied

What is the concept of the inverse supply function in Economics?

Answer:

The inverse supply function represents the price of a good as a function of the quantity supplied. In Economics, the supply function relates the price of a good to the quantity supplied. The inverse supply function is derived by rearranging this equation to make the price the subject. In simpler terms, it shows how the price changes based on the quantity of goods supplied.

Explanation:

In Economics, the inverse supply function plays a crucial role in understanding the relationship between price and quantity supplied. When analyzing supply and demand in the market, economists often look at how changes in price affect the quantity of goods produced and supplied by producers. The inverse supply function provides a way to visualize this relationship by expressing the price of a good as a function of the quantity supplied.

When looking at the given data where P.a.b.=$40 and F=50, these values are likely irrelevant to the inverse supply function equation and can be disregarded for this case. The focus is on determining the correct inverse supply function that accurately reflects the relationship between price and quantity supplied.

Among the options provided, P=-36.667 + 0.16670s, P = 220 +0.16670s, and P= 220 +60s are potential candidates for the inverse supply function. However, the equation P=-220 + 62s is not realistic as it results in negative prices when the quantity supplied is zero, which is not feasible in practical situations.

Therefore, to determine the accurate inverse supply function, it is essential to ensure that the equation expresses price (P) in terms of quantity supplied (s) and yields positive prices for all relevant quantities. This helps in building realistic models of supply and understanding how price and quantity supplied are interrelated in Economics.