1.2.4 - 1.2.5 (and some 1.2.8)

Question 1

Conditions of supply

Answer 1

Factors other than price which lead to an increase or decrease in supply. These include costs of production, productivity, and number of firms in the market, price of goods in joint supply

Question 2

Long run

Answer 2

When all factors of production are variable

Question 3

Price elasticity of supply

Answer 3

A measure of the responsiveness of quantity supplied to a change in price. The formula is % change in quantity supplied / % change in price

Question 4

Producer surplus

Answer 4

The difference between the market price firms receive and the price at which they are prepared to supply

Question 5

Short run

Answer 5

When at least one factor of production is fixed

Question 6

Supply

Answer 6

The quantity of goods that suppliers are willing to sell at a given price over a period of time

Question 7

Extension of supply

Answer 7

A movement upwards ALONG the supply curve as the price of a good rises

Question 8

Contraction of supply

Answer 8

A movement ALONG the supply curve downwards as price of the goods falls

Question 9

Wages

Answer 9

The factor reward paid to labour. For many (but not all) firms this is a key cost of production. An increase in wages will decrease supply

Question 10

Productivity

Answer 10

Output per worker. Improvements due to technological progress for example or more investment reduce unit costs of production and hence will increase supply

Question 11

Regulations

Answer 11

Rules or laws which firms must meet eg. pollution regulations. These increase the costs of production

Question 12

Indirect taxes and subsidies

Answer 12

Affect the costs of production since (although the incidence can be shifted) they are levied on firms

Question 13

Weather

Answer 13

Abnormal events create positive or negative supply side shocks for agricultural products

Question 14

Unitary price elasticity of supply

Answer 14

PES = 1 and passes through the origin on the diagram

Question 15

Producer substitutes

Answer 15

Goods which producers can produce as an alternative to what they are currently producing

Question 16

Time period

Answer 16

Elasticity ALWAYS increases with this. This is especially the case for agricultural products with a growing cycle

Question 17

Spare capacity

Answer 17

Short run production potential that is not currently in use. The more there is then the easier and cheaper it is to increase supply. PES will be higher

Question 18

Stocks

Answer 18

Amount of finished or semi-finished goods held but not yet sold. Sometimes called working capital. The easier or cheaper it is to hold these then generally the higher will be PES