1.2.4 Supply

Question 1

What is Supply?

Answer 1

Refers to how much is supplied at each price over a certain period of time

Question 2

What happens to Supply when there is a rise in price?

Answer 2

Causes an increase in the quantity supplied (extension in Supply)

Question 3

What happens to Supply when there is a fall in price?

Answer 3

Causes a decrease in the quantity supplied (contraction in Supply)

Question 4

What are the factors that will cause a shift in the Supply Curve?

Answer 4

• Cost of production. These include wages, raw materials, energy and rent. an INCREASE in costs of production, such as electricity prices, will cause the whole Supply Curve to shift to the LEFT
• Productivity of the workforce. Labour productivity refers to the output per worker per hour worked. If there is a rise in productivity then the whole Supply Curve will shift to the RIGHT
• Indirect taxes. An indirect tax raises the cost of supply and so causes the Supply Curve to shift to the LEFT. A rise in VAT will cause the Supply Curve to become steeper because it is a percentage of the price of a product, whereas a rise in a specific tax, e.g. 20p per unit, will cause a parallel LEFTWARD shift in the Supply Curve
• Subsidies. These are grants to producers from the government which effectively lead to a reduction in costs of production so causing a RIGHTWARD shift in the Supply Curve
• Technology. New invention and new technology usually result in an INCREASE in productivity so causing the Supply Curve to shift to the RIGHT
• Discoveries of new reserves oof a raw material. If, for example, a country discovers new oil reserves then the Supply Curve to shift to the RIGHT