A2.01.07: The Non-Price Determinants of Supply

Question 1

Explain how competitive supply works and how it affects the supply curve

Answer 1

• 2 or more goods are produced from the same input but the production of one good comes at the expense of the other.
• The production of one good competes with the production of another.
• inverse relationship in terms of shifting supply curve

Question 2

Explain how joint supply works and how it affects the supply curve

Answer 2

• 2 or more goods are produced together in fixed proportions from a single source or input - when one good’s produced, the production of another good automatically occurs as well (both goods are often complementary goods)
• goods produced are directly proportional to one another

Question 3

How do the cost of FOP affect the Supply curve

Answer 3

If a factor’s price falls, production cost decreases and production becomes more profitable resulting in firm producing less hence, they have more supply leftover and supply shifts to the right. Vice versa

Question 4

How does Technology affect the Supply curve

Answer 4

New, improved technology lower costs of production, thus making it more profitable therefore causing the firm to produce more
hence, they are able to make more supply at a faster rate and supply shifts to the right. Versa versa

Question 5

How do firm price expectations affect the Supply curve

Answer 5

If firms expect the price of their product to fall, they may take advantage of the current higher price and therefore, supply increases in the present hence, in this case, there’s an increase in the supply in the present and a rightward shift of the supply curve, as a result.

Question 6

How do taxes (indirect or on profits) affect the Supply curve

Answer 6

Firms treat taxes as if they were costs of production hence, imposition of a new tax or increase of an existing tax represents an increase in the production costs therefore, the supply would decrease resulting in a leftward shift of the supply curve

Question 7

How do subsidies affect the Supply curve

Answer 7

These are payments made to the firm by the government hence, subsidies may be given to increase the incomes of producers or to encourage incentives to increase production therefore, supply would shift to the right.

Question 8

How do the number of firms affect the Supply curve

Answer 8

An increase in the number of firms producing the same good increases supply therefore, resulting in a rightward shift in the supply curve. This follows from the fact that market supply is the sum of all individual supplies.

Question 9

How do economic shocks affect the Supply curve

Answer 9

Shocks can affect supply like bad weather conditions in the case of agricultural products therefore, shifting the supply curve leftwards.

Question 10

What are the non-price determinants of supply (CENS TTPF)

Answer 10

C - cost of fop
E - economic shocks
N - number of firms
S - subsidies
T - taxes
T - technology
P - price of related goods
F - firm price expectations