1.2.2 - Supply NOT IN

Question 1

What is Supply?

Answer 1

Supply is measured in terms of quantity of a good or service that a producer is willing and able to make available on the market

Question 2

How does Price affect Supply?

Answer 2

As price paid by customers increase, normally a business will want to supply more in anticipation of higher profits

Question 3

What are the 5 Non Price determines of supply?

Answer 3

• Cost of production
• Introduction of new technology
• Indirect taxes
• Government subsidies
• External shocks

Question 4

How does cost of production affect supply?

Answer 4

If costs of production increases , the business may decide to produce less and up their prices.
The product will have lower sales and therefore lower revenue

Question 5

How does Introduction of New Technology affect supply?

Answer 5

Means more goods can be supplied.
Mechanisation and automation of production processes means supply can increase
Mass production methods improved to increase capacity

Question 6

How do indirect taxes affect Supply?

Answer 6

When the government increases tax on goods such as petrol then supply will decrease
VAT / custom tax / excise tax are all indirect taxes and when applied to goods it makes supplying them less attractive

Question 7

How do Government Subsides affect Supply?

What is a Subsidy

Answer 7

• A payment from the government to encourage more suppliers to enter the market and to supply more.
  With a subsidy there’s an increase in supply because costs have been lowered thanks to the subsidy

Question 8

How do External Shocks affect Supply?

Answer 8

External Shocks may mean that the business may not want to supply at current levels
E.g.
- War , business may not want the supply goods to a country which is in war - Changes in oil price which can affect transport costs
- Weather problems - particularly for crops
- Changes in labour laws ( e.g. length of working week or minimum wage )