Supply 1.5

Question 1

Definition of Supply

Answer 1

Supply is the quantity of a product suppliers offer at a given price.

Higher prices incentivise suppliers to increase the quantity they offer to the market.

Question 2

The Supply Curve

Answer 2

Typically slopes upward (left to right), indicating more is supplied at higher prices.

Movement along the supply curve: Caused by a change in price alone.

Question 3

Shift in the supply curve

Answer 3

Caused by other factors, moving the curve left or right.

Question 4

Factors Affecting Supply — Production costs

Answer 4

Higher production costs (wages, raw materials, rent) decrease supply.

Lower costs increase supply (rightward shift).

Example: Rising gas prices led to Tata Chemicals closing a factory due to reduced profitability.

Question 5

Factors leading to a change in S— availability of resources

Answer 5

Shortages in land, labor, materials, or capital reduce supply.

Example: Skill shortages in the UK (e.g., engineers, nurses) constrained economic growth.

Question 6

Factors leading to a change in S—New technology

Answer 6

Generally reduces production costs and increases supply (rightward shift).

Example: Advances in car and aerospace manufacturing helped revive the UK manufacturing sector.

Question 7

Factor leading to a change in S—Indirect taxes

Answer 7

Taxes like VAT increase production costs, reducing supply (leftward shift).

Example: UK VAT increase in 2011 affected supply and raised consumer prices depending on demand elasticity.

Question 8

Factors leading to a change in s—Subsidies

Answer 8

Government subsidies reduce costs and increase supply.

Example: UK subsidies for renewable energy encouraged the supply of low-carbon electricity.

Question 9

Factors leading to a change in S—External Shocks

Answer 9

World events: Political instability can reduce supply, e.g., Middle Eastern conflicts affect oil supply.

Weather: Good weather increases crop yields; bad weather disrupts supply.

Government Policies: Interest rate changes and regulations affect supply by influencing business costs or market competition.

Related Goods’ Prices: Rising prices of alternatives may lead suppliers to switch production, reducing supply of the initial good.