2.3 Supply

Question 1

Supply

Answer 1

A quantity of a good or service that a producer is willing and able to supply at a given price at a given point in time

Question 2

Factors affecting a shift in supply

Answer 2

• Availability of factors of production
• Increases in government subsidies/taxes
• New firms entering the market
• Existing firms growing larger
• Natural Events (for natural products + FOP’s)
• New Technological Processes
• Changes in the price of factors of production
• More government regulations on health and safety

Question 3

Consequences of a shift in supply

Answer 3

• economies of scale
• monopoly
• potential for increased exports (more competitive )
• more/less efficiency
• more revenue

Question 4

PES

Answer 4

measures quantity supplied against a change in price
PES = Q2 - Q1 / Q1 / P2 - P1 / P1 x 100

Question 5

Factors affecting PES

Answer 5

• Spare production capacity
• Flexibilty of factors of production
• Stock of finished product
• Length of production process

Question 6

How PES affects Consumers

Answer 6

• if supply is elastic than consumers can buy more easier
• IF Supply is inelastic consumers will pay more to buy less
• If supply is fixed or limited this may lead to illegal reselling

Question 7

How PES affects producers

Answer 7

• If Supply is inelastic it is harder for new firms to enter the market
• If Supply is inelastic then demand side will set the price
• If Supply is elastic then firms can be more competitive

Question 8

Effect of PES on consumers?

Answer 8

• If PES is inelastic it can be difficult to buy more of the product without incurring large increase in price
• especially if supply is fixed, e.g concert
• if PES is elastic then firms can respond to changes in demand more easily

Question 9

Effect of PES on Producers

Answer 9

PES can be increased by:
- Adopting latest tech
- creating spare capacity
- large amount of stock
- improving storage methods
- training employees to do more than one job

Question 10

Evaluating PES

Answer 10

• Costly for firms to raise PES
• Consumers benefit from a fall in demand for a product with inelastic supply, change in price will be large
• Hard to measure and can change over time
• Perishable products may not be able to significantly increase PES
• Some producers benefit from inelastic supply as increases in demand lead to large changes in price