2.2 Supply

Question 1

What is supply

Answer 1

Quantity of goods and services a firm/producer is willing and able to supply to the market for sale at different possible prices, during a particular time period

Question 2

Law of supply

Answer 2

Positive relationship between the quantity of a good supplied and its price

As the price of a good increases, quantity supplied also increases

Question 3

individual supply

Answer 3

supply of one product from one firm at every price

Question 4

Market supply

Answer 4

The sum of all individual supplies of a product at every price

Question 5

law of diminishing marginal returns

Answer 5

adding more of one factor of production, while holding at least one other factor of production constant, will at some point yield lower marginal returns

Question 6

marginal returns

Answer 6

additional output gained from adding an additional unit of input to a production process

Question 7

Marginal cost

Answer 7

the cost of producing one more unit of a good

Question 8

What are the non price determinants of supply

Answer 8

cost of factors of production
increases in technology
prices of related goods (competitive supply + joint supply)
producer price expectations
taxes
subsidies
the number of firms

Question 9

Explain the non-price determinant of the costs of factors of production

Answer 9

If factor prices rise, production costs increase, production becomes less profitable and firm decreases supply

Question 10

Explain the non-price determinant of improvements in technology

Answer 10

Improved technology lowers production costs, making production more profitable, increasing supply

Question 11

Explain the non-price determinant of competitive supply

Answer 11

Refers to the production of one good or another good by a producer

A fall in price in good A, results in an increase in good B supply, as it is now more profitable

Question 12

Explain the non-price determinant of joint supply

Answer 12

Refers to production of goods that are derives from a single product

Increase in price of Good A, leads to increase in its quantity supplied and also an increase in supply of the other joint products

Question 13

Explain the non-price determinant of producer price expectations

Answer 13

If firms expect the price of their products to rise, they may withhold some supply expecting that they are able to sell it for a higher price, decreasing supply

Question 14

Explain the non-price determinant of taxes

Answer 14

When taxes are imposed, firms cost of production increases, so supply will decrease

Question 15

Explain the non-price determinant of subsidy

Answer 15

Imposition of subsidy, lowers the production costs, increasing supply

Question 16

Explain the non-price determinant of the number of firms

Answer 16

An increase in number of firms producing the good, increases supply

Question 17

Law of diminishing marginal returns

Answer 17

As more and more units of a variable input (labour) is added to one of more fixed inputs (land), the marginal redirect at first increases, but there comes a point where it begins to decrease

E.x to many farmers on land, due to overcrowding , each worker has less land to work with

Question 18

Marginal costs relation to diminishing marginal returns

Answer 18

When marginal product increases, marginal cost decreases

When marginal product is maximum, marginal cost is minimum

When marginal product falls, marginal cost increases

Question 19

Competitive supply

Answer 19

is when the production of two goods use similar resources and processes. When a supplier produces more of one good, it means producing less of the other.