1.2.2 Supply

Question 1

Define supply

Answer 1

Measured in terms of the quantity of a good/service that a producer is willing and able to make available on the market, at a given price over a given period of time.

Question 2

What type of factors lead to a change in supply?

Answer 2

1. Price

2. Non-price

Question 3

How can price affect supply?

Answer 3

As the price for a product/service increases, a business will normally want to supply more, in anticipation of higher profits.

Question 4

What non-price factors can affect supply?

Answer 4

1. Cost of production
2. Introduction of new technology
3. Indirect taxes
4. Government subsidies
5. External shocks

Question 5

How can cost of production affect supply?

Answer 5

If cost of production increases, business may decide to produce less.

Question 6

How can introduction of new technology affect supply?

Answer 6

It means more goods can be supplied. Automation of production process means supply can increase.

Question 7

How can indirect taxes affect supply?

Answer 7

When government increases tax on goods, supply will decrease

Question 8

How can government subsidies affect supply?

Answer 8

With a subsidy, there’s an increase in supply because costs have been lowered due to the subsidy.

Question 9

How can external shocks affect supply?

Answer 9

Means the business may not want to supply at current levels. Eg: business won’t want to supply goods to a country at war.