1.4 Nature Of Supply

Question 1

Define what a firm is

Answer 1

An organisation that brings together factors of production in order to produce output

Question 2

Define a supply curve

Answer 2

A graph showing the quantity supplied at any given price

Question 3

Define a competitive market

Answer 3

Market in which individual firms can’t influence the price of their good or service due to competition from other firms

Question 4

What is the relationship between price and quantity in a supply curve?

Answer 4

There is a positive relationship between quantity and price.
Upward sloping curve.
More profit can be made more incentive to supply.

Question 5

What 5 factors affect the position of the supply curve?

Answer 5

1. Production costs
2. The technology of production
3. Taxes and subsidies
4. Price of related goods
5. Firms’ expectations about future prices

Question 6

How does cost affect supply?

Answer 6

Increased cost means supply will be expected to decrease at any given price.

Question 7

How does new technology affect supply?

Answer 7

Firms can be more cost effective and induces them to supply more output at a given price.

Question 8

How do taxes and subsidies affect supply?

Answer 8

Taxes cause supply to shift to the left as firms provide less.
Subsidising a good/ service reduces costs and shifts supply to the right

Question 9

Define competitive supply

Answer 9

A firm can use its factors of production to produce alternative products.

(a supplier can only supply more of one product by producing less of another).

Question 10

Define joint supply

Answer 10

Where a firm produces more than one product

Question 11

Define composite supply

Answer 11

Where a product produced by a firm serves more than one market.

??( a good can be obtained from different sources (eg electricity from coal or nuclear power)

Question 12

How do prices of other goods affect supply?

Answer 12

A firm may be in a situation of competitive supply if another good they COULD produce has a higher price.
A firm may also produce goods jointly. An increase in the price of one good may mean it produces more of both.

Question 13

How do firms make decisions about supply?

Answer 13

On the basis of expected future prices (anticipation could mean storing stocks)

Question 14

What movements can happen along a supply curve?

Answer 14

Extension or contraction

Question 15

Define producer surplus

Answer 15

Difference between price received by firms for a good/ service and the price at which they would have been prepared to supply it.

Question 16

Draw producer surplus on a graph

Show the marginal supplier

Answer 16

Area of surplus is above supply line and below price line

Marginal supplier is where P* and S cross

Question 17

What actually is supply?

Answer 17

Amount of good/ service firms in a market are prepared to offer at any given price over a period of time.
The definition of supply refers to market supply.

Question 18

What does the law of supply state?

Answer 18

As the price of a good rises, quantity supplied also rises.

Question 19

What happens as the price of a good rises and why?

Answer 19

Quantity OFFERED/ supplied rises as businesses can make profit and cover costs. Plus a higher profit margin can be achieved on each good.

Question 20

Draw a producer surplus graph

Answer 20

Supply curve. Price level. Area between price level and supply curve shaded as producer surplus