2.2: supply

Question 1

Supply

Answer 1

Quantity of goods and services that firms are willing and able to sell at any given price per time period

Question 2

Law of supply

Answer 2

The positive correlation between quantity supplied of a product and its price, Ceteris paribus.

Question 3

Reasons for the law of supply

Answer 3

• existing firms can earn higher profit if they supply more when the price increases
• new firms will enter the market, attracted by high profit margins

Question 4

Assumptions of the law of supply

Answer 4

1) law of diminishing marginal returns

2) increasing marginal costs

Question 5

Law of diminishing marginal returns

Answer 5

• describes how output is affected when a firm uses more factors of production while maintaining at least one factor (usually capital) fixed in the long run
• By employing additional factors of production, the marginal return (additional output) will eventually decline

Question 6

Marginal cost

Answer 6

Cost of producing a n additional unit of output

Question 7

Increasing marginal costs

Answer 7

• Marginal cost roses with each successive unit produced owing to diminishing marginal returns.
• higher prices are needed to cover higher marginal costs of production when a firm increases output

Question 8

Supply curve

Answer 8

Illustrates the positive relationship between price and quantity supplied

Question 9

Market supply

Answer 9

Sum of all individual supply of a product at each price level

Question 10

Non-price determinants of supply

Answer 10

C - cost of factors of production 
R - related goods price 
 I  - indirect taxes 
S - subsidies 
T - changes in technology 
E - expectations of future price 
N - number of firms in industry 

Acronym CRISTEN

Question 11

Change in cost of factors of production as a non-price determinant of supply

Answer 11

higher cost of production factors leads to a lesser profit margin and less supply

Question 12

Price of related goods

Answer 12

Either as joint or competitive supply

Question 13

Competitive supply

Answer 13

• Output of one product prevents or limits the output of alternative products due to competing resources or limited time.
• increase in the price of one leads to a decrease in supply for the other

Question 14

Joint supply

Answer 14

• Two products that are related to one another in production, one is often referred to as the by-product
• increase in the production of x leads to an increase in the production of y
• price/supply change in principal product = positive change on all by-products

Question 15

Indirect taxes

Answer 15

• Government levies on expenditure rather than income that are imposed on goods and services
• increase in price paid by consumers and adds to cost of production
• reduces profits and reduces supply

Question 16

Subsides

Answer 16

• Financial assistance form government to help encourage output/supply by reducing the cost of production.
• often given to producers or providers of goods and services deemed useful to society

Question 17

Future price expectations

Answer 17

Sellers expect demand to increase in the future, supply will decrease in the present

Question 18

Technology

Answer 18

Advances in technology cause an increase in supply

Question 19

Number of firms

Answer 19

Increase in supply as more actors are producing the product