Supply

Question 1

Define supply

Answer 1

The ability and willingness of firms to provide goods and services at each price in a given time period

Question 2

Define law of supply

Answer 2

Normally, the quantity supplied varies directly with the price

Question 3

Define supply curve

Answer 3

A graph showing how the supply of a product varies with changes in its price

Question 4

Define individual supply

Answer 4

The supply of a good or service by an individual producer

Question 5

Define market supply

Answer 5

The total supply of a good or service found by adding together all individual producers’ supplies

Question 6

Define shift of the supply curve

Answer 6

A complete movement of the existing supply curve either inward/ to the left or outward/ to the right (showing either less or more is supplies at every price)

Question 7

Define movement along the supply curve

Answer 7

When the price changes (due to a change in demand) leading to a movement up or down the existing supply curve

Question 8

Define price elasticity of supply (PES)

Answer 8

The responsiveness of quantity supplied to a change in the price of the product

Question 9

Define elastic supply

Answer 9

When the percentage change in quantity supplied is greater than the percentage change in price

Question 10

Define inelastic supply

Answer 10

When the percentage change in quantity supplied is less than the percentage change in price

Question 11

According to the law of supply, why does the supply curve slope upwards?

Answer 11

• Firms are likely to gain higher profits by supplying more
• Production costs are likely to rise as more is produced
• This enables new firms to enter the market as they often has higher costs

Question 12

How is time an important factor of supply?

Answer 12

It is easy to increase supply of some products ‘in a given time period’ but difficult for other products. For example, more cornflakes can be supplied to shops relatively quickly but to supply more seats at Wembley Stadium would take a long time.

Question 13

What does an individual’s supply schedule show?

Answer 13

How much that producer will be prepared to sell at each price (e.g. 10p - quantity supplied = 2, 20p - quantity supplied = 4 etc)

Question 14

How do you calculate market supply?

Answer 14

Add together individual supply schedules of all producers (quantity of 1,000 + quantity of 500 = quantity of 1,500)

Question 15

What is a movement up the supply curve called?

Answer 15

An expansion in supply

Question 16

What is a movement down the supply curve called?

Answer 16

A contraction in supply

Question 17

What is a shift of a supply curve caused by?

Answer 17

Non-price factors

Question 18

What is a movement along the supply curve caused by?

Answer 18

Change in price

Question 19

What is an effect of an increase in costs of production

Answer 19

Producers would supply less at each price

Question 20

What is an effect of an increase in taxes and subsidies?

Answer 20

An increase in indirect taxes means a rise in costs. Increase in subsidies has the opposite effect

Question 21

What is an effect of new technology?

Answer 21

Likely to lead to a fall in costs and therefore a rightward shift

Question 22

What is an effect of climate change?

Answer 22

In agriculture, climate warming may mean less can be supplied of a product

Question 23

What is an effect of an increase in producers or size of firms?

Answer 23

Both will lead to more being supplied at every price (a rightward shift)

Question 24

What is an effect of government regulation?

Answer 24

Introduction of new government regulations such as health and safety will increase costs leading to a shift to the left

Question 25

What is the overall consequence of shifts of the supply curve?

Answer 25

In almost all situations, a shift of the supply curve will result in price and quantity moving in the opposite direction. Therefore, if supply shifts to the right, price falls while quantity increases.

Question 26

What is the outcome of a greater economies of scales?

Answer 26

Greater profits for the producer and lower prices for consumers.

Question 27

What is the outcome of an increase in efficiency?

Answer 27

Increase in profit and also possibly greater productivity

Question 28

What is the outcome of an increase in sales?

Answer 28

If price falls then consumers are likely to buy more leading to increase in profit.

Question 29

What is the outcome of an increase in exports?

Answer 29

Greater economies of scale, increase in efficiency and fall in price makes the firm more competitive

Question 30

What is the outcome of becoming a monopoly/oligopoly?

Answer 30

If a firm is more competitive it gains market share and forces competitors out

Question 31

What is a movement along the supply curve caused by?

Answer 31

By a change in price/demand

Question 32

How does an increase in price and quantity effect producers?

Answer 32

• Initial increase in profits
• More firms enter the market shifting supply to the right which may reduce profit

Question 33

How does an increase in price and quantity effect consumers?

Answer 33

• Products are now more expensive
• Price falls. Consumers have more choice and can now buy more products

Question 34

How does a decrease in price and quantity effect producers?

Answer 34

• Reduction in profits: less efficient firms forced out. Reduction in output

Question 35

How does an decrease in price and quantity effect consumers?

Answer 35

Consumers can afford more, but now have less choice

Question 36

How does a supply curve and price elasticity of supply link?

Answer 36

The supply curve tells us that if price increases, quantity increases. Price elasticity of supply tells us the same, but by how much quantity supplied will change in response to a change in price.

Question 37

Value of price elasticity of supply = 0. What does this mean?

Answer 37

There is no change in quantity as price changes

Question 38

Value of price elasticity of supply = between 0 and 1. What does this mean?

Answer 38

Change in quantity is less than the change in price

Question 39

Value of price elasticity of supply = 1. What does this mean?

Answer 39

Change in quantity is equal to the change in price

Question 40

Value of price elasticity of supply = 0 and infinity. What does this mean?

Answer 40

Change in quantity is more than the change in price

Question 41

Value of price elasticity of supply = infinity. What does this mean?

Answer 41

An infinite amount can be supplied at the given price - no change in price

Question 42

Why is price elasticity of supply important?

Answer 42

Allows consumers and producers to know what the effect of a change in supply or price will be

Question 43

How does price elasticity of supply affect consumers?

Answer 43

• If the product consumers buy has inelastic supply, then they are likely to face high prices in order to obtain more
• If the product they buy has a very inelastic supply, then they may not be able to get more as the quantity is fixed. This can give rise to ticket touts when demand exceeds supply.
• If the product they buy has an elastic supply then it is quite east to purchase more

Question 44

How does price elasticity of supply affect producers?

Answer 44

• Firms would prefer an elastic supply as it is easier to respond to price changes
• More elastic supply enables a firm to be more flexible in what it offers consumers
• Very inelastic supply means that the price will depend entirely on the demand
• Can lead to losing control of the price to ticket touts

Question 45

What is the difference between a shift of the demand curve and a movement along the demand curve?

Answer 45

A shift of the supply curve = the whole curve moves inwards or outwards

A movement along the supply curve = going up or down the curve