1.5 Supply

Question 1

Supply

Answer 1

. Supply is the quantity of a product suppliers offer at a given price.
. Higher prices incentivise suppliers to increase the quantity they offer to the market.

Question 2

Supply curve

Answer 2

. Typically slopes upward (left to right), indicating more is supplied at higher prices.
. Movement along the supply curve: Caused by a change in price alone.
. Shift in the supply curve: Caused by other factors, moving the curve left or right.

Question 3

Factors affecting supply curve: production cost

Answer 3

. Higher production costs (wages, raw materials, rent) decrease supply.
. Lower costs increase supply (rightward shift).
. Example: Rising gas prices led to Tata Chemicals closing a factory due to reduced profitability.

Question 4

Factors affecting supply curve: availability of resources

Answer 4

. Shortages in land, labor, materials, or capital reduce supply.
. Example: Skill shortages in the UK (e.g., engineers, nurses) constrained economic growth.

Question 5

Factors affecting supply curve: new tech

Answer 5

. Generally reduces production costs and increases supply (rightward shift).
. Example: Advances in car and aerospace manufacturing helped revive the UK manufacturing sector.

Question 6

Factors affecting supply curve: indirect taxes

Answer 6

. Taxes like VAT increase production costs, reducing supply (leftward shift).
. Example: UK VAT increase in 2011 affected supply and raised consumer prices depending on demand elasticity.

Question 7

Factors affecting supply curve: subsidies

Answer 7

. Government subsidies reduce costs and increase supply.
. Example: UK subsidies for renewable energy encouraged the supply of low-carbon electricity.

Question 8

Factors affecting supply curve: external shocks (world events, weather, government policies, related goods prices)

Answer 8

. World events: Political instability can reduce supply, e.g., Middle Eastern conflicts affect oil supply.
. Weather: Good weather increases crop yields; bad weather disrupts supply.
. Government Policies: Interest rate changes and regulations affect supply by influencing business costs or market competition.
. Related Goods’ Prices: Rising prices of alternatives may lead suppliers to switch production, reducing supply of the initial good.