1.2.2 Supply

Question 1

What is supply?

Answer 1

• supply is the number of goods/services businesses are willing to sell at a given price in a specific period of time
• as the price increases, the quantity supplied increases
• as the price decreases, the quantity supplied decreases

Question 2

Non-price factors leading to a change in supply

Answer 2

• changes in cost of production
• new technology
• indirect taxes
• government subsidies
• external shocks

Question 3

1. Changes in the cost of production

Answer 3

• an increase in costs of production makes it more expensive to produce each unit and a business will be able to produce less at a given price

Question 4

2. New technology

Answer 4

• advances in technology will lead to lower costs of production and businesses will be able to produce more at a given price

Question 5

3. Indirect taxes

Answer 5

• the government increases indirect taxes on businesses, which causes an increase in the costs of production as firms have to pat extra costs

Question 6

4. Government subsidies

Answer 6

• a subsidy given by the government will reduce the costs of prodcution

Question 7

5. External shocks

Answer 7

• an unexpected event can change the supply