micro 2.2- supply

Question 1

define supply

Answer 1

supply is the willingness and ability of producers to produce goods and services at various prices in a given time period, ceteris paribus.

Question 2

describe a supply graph

Answer 2

• price on y-axis
• quantity supplied on x axis
• supply curve is upward sloping

Question 3

state the law of supply

Answer 3

price and Qs have a positive, or direct relationship:
- when the price increases suppliers want to produce more as they will have higher profit margins (assuming other costs are constant)
- when the price decreases suppliers want to produce less as they will have lower profit margins.

Question 4

describe the relationship between an individual producer’s supply and market supply

Answer 4

• individual supply is a component of market supply, which is the summation of all the individual supplies
• individual supply curve is generally steeper

Question 5

what is the cause of and reason for movement along a supply curve?

Answer 5

a change in price; law of supply

Question 6

what affects how big of a change in supply there will be based on a change in price?

Answer 6

the price elasticity of supply (PES); higher PES= smaller gradient

Question 7

when price increases, there is a(n) —— along the supply curve

Answer 7

extension; Qs increases

Question 8

when price decreases, there is a(n) —— along the supply curve

Answer 8

contraction; Qs decreases

Question 9

describe shifts of the supply curve

Answer 9

• supply increases, rightward shift
• supply decreases, leftward shift

Question 10

state the main 6 non-price determinants of supply

Answer 10

1. changes in costs of factors of production (FOPs)
2. prices of related goods (in the cases of joint and competitive supply)
3. indirect taxes and subsidies
4. future price expectations
5. changes in technology
6. number of firms

Question 11

explain changes in costs of factors of production (FOPs) as a non-price determinant of supply

Answer 11

• if cost of production increases, supply decreases
• if cost of production decreases, supply increases
  e.g. wages, rent, cost of machines

Question 12

explain prices of related goods as a non-price determinant of supply

Answer 12

• Competitive supply; the factors of production can be used to produce more than one product but are limited to one (land can make apples or potatoes)
• Joint supply; when one good is produced, another is also produced at the same time (eg sheep for wool and meat)

Question 13

explain indirect taxes and subsidies as a non-price determinant of supply

Answer 13

> subsidies- money given by the government to firms to help increase production (increase supply)
indirect taxes (eg VAT)- tax imposed by the government that increases the supply costs of producers (decrease supply)

Question 14

explain future price expectations as a non-price determinant of supply

Answer 14

if suppliers expect prices to go up in the future, they decrease their supply today and save inventory to sell for a higher price in the future.

Question 15

explain changes in technology as a non-price determinant of supply

Answer 15

better machines cause efficiency/productivity to increase, increasing supply

Question 16

explain number of firms as a non-price determinant of supply

Answer 16

if number of firms increases, supply increases, more production of the product

Question 17

name the extra 2 non-price supply determinants

Answer 17

weather, supply shocks (sudden events)

Question 18

what happens when quantity supplied is independent of price? why does this happen?

Answer 18

supply curve goes straight up vertically
- immediate time (make more food NOW)
- fixed quantity of the good supplied now (eg theatre/stadium seats)
- fixed quantity and no possibility of producing more (eg original artwork)

Question 20

define supply

Answer 20

supply is the willingness and ability of producers to produce goods and services at various prices in a given time period, ceteris paribus.

Question 21

describe a supply graph

Answer 21

• price on y-axis
• quantity supplied on x axis
• supply curve is upward sloping

Question 22

state the law of supply

Answer 22

price and Qs have a positive, or direct relationship:
- when the price increases suppliers want to produce more as they will have higher profit margins (assuming other costs are constant)
- when the price decreases suppliers want to produce less as they will have lower profit margins.

Question 23

describe the relationship between an individual producer’s supply and market supply

Answer 23

• individual supply is a component of market supply, which is the summation of all the individual supplies
• individual supply curve is generally steeper

Question 24

what is the cause of and reason for movement along a supply curve?

Answer 24

a change in price; law of supply

Question 25

what affects how big of a change in supply there will be based on a change in price?

Answer 25

the price elasticity of supply (PES); higher PES= smaller gradient

Question 26

when price increases, there is a(n) —— along the supply curve

Answer 26

extension; Qs increases

Question 27

when price decreases, there is a(n) —— along the supply curve

Answer 27

contraction; Qs decreases

Question 28

describe shifts of the supply curve

Answer 28

• supply increases, rightward shift
• supply decreases, leftward shift

Question 29

state the main 6 non-price determinants of supply

Answer 29

1. changes in costs of factors of production (FOPs)
2. prices of related goods (in the cases of joint and competitive supply)
3. indirect taxes and subsidies
4. future price expectations
5. changes in technology
6. number of firms

Question 30

explain changes in costs of factors of production (FOPs) as a non-price determinant of supply

Answer 30

• if cost of production increases, supply decreases
• if cost of production decreases, supply increases
  e.g. wages, rent, cost of machines

Question 31

explain prices of related goods as a non-price determinant of supply

Answer 31

• Competitive supply; the factors of production can be used to produce more than one product but are limited to one (land can make apples or potatoes)
• Joint supply; when one good is produced, another is also produced at the same time (eg sheep for wool and meat)

Question 32

explain indirect taxes and subsidies as a non-price determinant of supply

Answer 32

> subsidies- money given by the government to firms to help increase production (increase supply)
indirect taxes (eg VAT)- tax imposed by the government that increases the supply costs of producers (decrease supply)

Question 33

explain future price expectations as a non-price determinant of supply

Answer 33

if suppliers expect prices to go up in the future, they decrease their supply today and save inventory to sell for a higher price in the future.

Question 34

explain changes in technology as a non-price determinant of supply

Answer 34

better machines cause efficiency/productivity to increase, increasing supply

Question 35

explain number of firms as a non-price determinant of supply

Answer 35

if number of firms increases, supply increases, more production of the product

Question 36

name the extra 2 non-price supply determinants

Answer 36

weather, supply shocks (sudden events)

Question 37

what happens when quantity supplied is independent of price? why does this happen?

Answer 37

supply curve goes straight up vertically
- immediate time (make more food NOW)
- fixed quantity of the good supplied now (eg theatre/stadium seats)
- fixed quantity and no possibility of producing more (eg original artwork)