Supply

Question 1

Supply

Answer 1

• in a real market, when the goods produced are less that the demand, manufacturers will raise both the supply of their product and its price
• short-term increase in supply causes manufacturing costs to rise –> further increase in price –> increases the desired rate of production

Question 2

Law of Supply

Answer 2

• is an adverse/positive relationship
• sellers want to produce or supply at a higher price rather than a lower price
• quantity supplied expands as price rises
• quantity supplied contracts as price rises

Question 3

Factors Affecting Supply - Good’s Own Price

Answer 3

• adverse/positive relationship –> increase in price will induce an increase in the quantity supplied

Question 4

Factors Affecting Supply - Prices of Related Goods

Answer 4

Related good –> a good that can be produced with the firm’s existing factors of production
- goods from which inputs are derived to be used in the production of the primary good

• a change in price of a joint product will affect supply

Question 5

Factors Affecting Supply - Conditions of Production

Answer 5

• if there is a technological advancement in one good’s production, the supply increases
• other variables may also affect production conditions –> weather –> Agricultural goods

Question 6

Factors Affecting Supply - Expectations

Answer 6

• seller’s concern for future market conditions can directly affect supply
• supply curve shifts out
• if seller believes that the demand for his product will sharply increase in the foreseeable future –> production may immediately increase in anticipation of future price increases

Question 7

Factors Affecting Supply - Price of Inputs

Answer 7

• inputs –> land, labour, energy and raw materials
• if price of inputs increase –> supply curve shifts left –> sellers are less willing or able to sell goods at any given price

Question 8

Factors Affecting Supply - No. of Suppliers

Answer 8

• as more firms enter the industry –> market supply curve shifts out –> prices decrease

Question 9

Factors Affecting Supply - Gvrnment Polices/Regulations

Answer 9

• environmental/health regulations, hour and wage laws, taxes and rates have significant effect on supply

Question 10

An Increase in Supply

Answer 10

• if there is a change in supply which increases the QS at each price –> the supply curve shifts to the right

Question 11

A Reduction in Supply

Answer 11

• a change in supply that reduces the QS at each price –> shifts the supply curve to the left