Supply

Question 1

What is supply

Answer 1

Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period

Question 2

Describe the supply curve

Answer 2

The supply curve is sloping upward as there is a positive relationship between price and quantity supplied
Rational profit maximising producers would want to supply more as prices increase in order to maximise their profits

• extension upwards
• contraction downward

Question 3

How would you analyse a supply curve

Answer 3

If price is the only factor that changes (ceteris paribus), there will be a change in the quantity supplied (QS)
This change is shown by a movement along the supply curve
An increase in price from £7 to £9 leads to a movement up the supply curve from point A to B
Due to the increase in price, the quantity supplied has increased from 10 to 14 units
This movement is called an extension in QS
A decrease in price from £7 to £4 leads to a movement down the supply curve from point A to C
Due to the decrease in price, the quantity supplied has decreased from 10 to 7 units
This movement is called a contraction in QS

Question 4

What factors cause shifts in supply

Answer 4

• COP
• indirect taxes
• subsidies
• new tech
• change in the number of firms in the industry

Question 5

How does COP cause shift in supply

Answer 5

If the price of raw materials or other
costs of production change, firms respond by changing supply
COP
Increases

S Shifts Left
(S→S1)

COP
Decreases S Shifts Right
(S→S2)

Question 6

How does indirect taxes cause shifts in supply

Answer 6

Any changes to specific taxes or ad valorem taxes change the cost of production for a firm and impact supply
Taxes Increase

S Shifts Left
(S→S1)
Taxes Decrease S Shifts Right
(S→S2

Question 7

How do subsidies cause shifts in supply

Answer 7

Changes to producer subsidies directly impact the cost of production for the firm
Subsidy Increases

S Shifts Right
(S→S2)
Subsidy Decreases S Shifts Left
(S→S1)

Question 8

How does new tech cause shifts in supply

Answer 8

New technology increases productivity and lowers costs of production. Ageing technology can have the opposite effect
Technology Increases

S Shifts Right
(S→S2)
Technology Decreases

S Shifts Left
(S→S1)

Question 9

How does changes in the number of firms in the industry cause shifts in supply

Answer 9

The entry and exit of firms into the market has a direct impact on the supply. If ten new firms start selling building materials in Nuneaton, the supply of building material will increase
No. of Firms Increases

S Shifts Right
(S→S2)
No. of Firms Decreases

S Shifts Left
(S→S1)