1.2.2 Supply

Question 1

What is Supply?

Answer 1

Supply is the quantity of a good or service that producers are willing and able to supply to the market at a given price, at a particular time

Question 2

What does a supply curve show?

Answer 2

Shows the relationship between price and quantity supplied.

At any given point along the curve it shows the quantity of the good or service that would be supplied at a particular price

Question 3

What causes an extension in supply?

Answer 3

An increase in price causes an extension in supply

Question 4

What is a movement along the supply curve caused by?

Answer 4

A movement along the supply curve is caused by a change in price

Question 5

When does the supply curve shift to the left?

Answer 5

The supply curve shifts to the left when there’s a decrease in the amount supplied at every price

Question 6

When does the supply curve shift to the right?

Answer 6

The supply curve shifts to the right when there’s an increase in the amount supplied at every price

Question 7

What factors cause a shift in the supply curve?

Answer 7

1. Changes to the cost of production –> Increase in costs of production decreases producers’ profits
   and causes supply curve to shift to the left. Decrease in costs of production causes supply curve
   to shift to the right.
2. Improvements or New technology –> Technological improvements increase supply as they
   reduce costs of production.
3. Indirect taxes –> Taxes on a good or service, like VAT. The government can influence supply by
   changing taxation. If tax on a good/service increases, this increases costs for the producer and
   they will most likely reduce their supply.
4. Subsidies –> Money given to a business by the government to help it with costs and encourage it
   to produce more of a particular product.
5. Weather conditions -> Severe change in weather can affect supply of good/services, especially in
   agriculture where the weather affects harvests. Bad weather - too little rain cause crops to die
   early and supply will be lower. Good weather - good growth and an abundance of crops, so
   supply is increased
6. External shocks

Question 8

What is Joint Supply?

Answer 8

Joint supply is where the production of one good or service involves the production of another

Note: If the price of a product increases, then supply of it and any joint products will also increase.
For example, if the price of petrol increases, the level of drilling for oil will rise and the supply
of petrol and its joint products will increase.

Question 9

What is competitive supply?

Answer 9

Competitive supply is where two (or more) alternative goods can be produced from the same factors of production.

Note: For example, land used to grow potatoes might be used to grow wheat, so it’s up to the
producer to choose the best way to use their factors of production.