2.3 Supply

Question 1

What is supply?

Answer 1

The amount of a product put onto the market by firms at various different prices in a particular time period

Question 2

When would firms supply more?

Answer 2

As prices rise and therefore as revenue rises

Question 3

When would firms supply less?

Answer 3

As prices fall and therefore as revenue falls

Question 4

What is individual supply?

Answer 4

Amount of good/service an individual firm is prepared to offer for sale at any given price over a period time

Question 5

What is market supply?

Answer 5

Sum of the supply by every firm in a market

Question 6

What is joint supply?

Answer 6

Firm produces more than one product together where production of one good automatically leads to supply of another e.g beef and leather from cows

Question 7

What is competitive supply?

Answer 7

A firm can use its factors of production to produce alternative products where the supplier can only supply more of one product by producing less of the other e.g. a farmer planting carrots or potatoes

Question 8

What is the relationship between price and quantity supplied?

Answer 8

Direct relationship. As the price of a good rises, the quantity supplied increases. As the price falls, the quantity supplied decreases

Question 9

When would contraction occur on a supply curve?

Answer 9

If there’s a fall in supply caused by a decrease in price

Question 10

When would extension occur on a supply curve?

Answer 10

If there’s a rise in supply caused by an increase in price

Question 11

What factors (determinants) influence supply? aka shift the demand curve

Answer 11

1. Costs of production
2. Technology of production
3. The price of other related goods
4. Government policy
5. Firm’s expectations about future prices
6. The size (no. of firms in the market) and nature of the industry
7. Other factors e.g. weather
8. Price of goods supplied

Question 12

What is a government subsidy?

Answer 12

A benefit given to an individual or business usually from the government e.g. health insurance, education, technology etc.

Question 13

(Determinant of supply) How do costs of production effect market supply and how will it shift the supply curve?

Answer 13

• Increasing input costs e.g. raw materials will reduce supply
• Increasing wage costs will reduce supply
  Will show a shift to the left, therefore decreasing supply

Question 14

(Determinant of supply) How does technology of production effect market supply and how will it shift the supply curve?

Answer 14

• Improvements in technology have reduced some production costs therefore increasing the willingness of a producer to supply at a given price
  Will show a shift to the right, therefore increasing supply

Question 15

(Determinant of supply) How does the price of other related goods effect market supply and how will it shift the supply curve?

Answer 15

• Increase in price of beef would mean an increase in supply of leather
• Where a firm produces more than one product together
  Will show a shift to the right, therefore increasing supply of LEATHER not beef

Question 16

(Determinant of supply) How does government policy effect market supply and how will it shift the supply curve?

Answer 16

• Changes to indirect taxation e.g. sales tax such as VAT can impact supply
  Will show a shift to the left, therefore decreasing supply
• Increasing government subsidies on particular goods can also impact supply
  Will show a shift to the right, therefore increasing supply

Question 17

(Determinant of supply) How do firms’ expectations about future prices effect market supply and how will it shift the supply curve?

Answer 17

• Quite often production takes time
• Firms make supply decisions based on expected future prices
  Therefore, if it’s expected prices will increase then supply will also increase, shifting the curve to the right
  However, if it’s expected prices will decrease then supply will decrease, shifting the curve to the left

Question 18

(Determinant of supply) How does the size (no. of firms in the market) and nature of the industry effect market supply and how will it shift the supply curve?

Answer 18

• In a competitive industry, a small change in costs can have a big impact on supply
• In a less competitive/loyal industry, cost change won’t have a big impact on supply
  Therefore, it depends whether the industry is competitive or less competitive and how much the costs change as to whether supply increases (shifts to the right) or decreases (shifts to the left)

Question 19

(Determinant of supply) How do other factors e.g. weather effect market supply and how will it shift the supply curve?

Answer 19

• Bad weather such as drought could impact harvests therefore agricultural businesses will have less supply, thus shifting the curve to the left.
• However, good weather such as heavy rainfall could improve harvests therefore there will be more supply, thus shifting the curve to the right