Supply

Question 1

Factory’s affecting market supply (5.5)

Answer 1

The price of the good or service itself.
(Expectations of future prices).
The price of other goods or services.
The state of technology.
Changes in the costs of factors of production.
The quantity of the good available.
Climatic and seasonal influences.

Question 2

How do future expectations influence market supply…

Answer 2

Predicted high price - firms increase production

Predicted lower price - firms cut back production.

Question 3

How the price of other things affects market supply…

Answer 3

If price of X remained the same, but price Y went up, firms will cut back production of X and increase production of Y.

Question 4

How the state of technology influences market supply…

Answer 4

Better technology lowers production costs, means firms can supply more goods at same price. Allows firms to adjust production faster - to accommodate changing demand patterns.

Question 5

How changes in the cost of factors of production affects market supply…

Answer 5

Fall in costs FOP allows firms to produce more of a good.
Rise in FOP makes it difficult to maintain present supply.
Rise in FOP affects firms most who rely heavily on those FOP - eg, Hollywood increases sale price of their movies - some cinemas go out of business - reduced price.

Question 5

How the quantity of the good available affects market supply… (2 + 2 eg)

Answer 5

Actual quantity of the good is an overall limiting factor.
Eg quantity of Oil is determined by known reserves of oil.
Number of suppliers also affects supply.
Eg more energy drink suppliers = more supply.

Question 6

How Climatic and seasonal influence affects market supply…

Answer 6

Mostly affect agricultural products.
Good condos - increase in supply
Bad Conds - decrease in supply

Question 7

Market supply schedule is derived from…

Answer 7

The summation of of all the supply schedules of the individual firms that operate in the industry.

Question 8

Reasons why the LAW OF SUPPLY occurs…

Answer 8

1. Products become more profitable so firms increase production.
2. Higher prices attract other firms.

Question 9

Change of price leads to a change in supply in what direction…

Answer 9

Same direction of price change.

Question 10

How does price of the good itself influence supply.

Answer 10

The market price influences the producers ability and willingness to supply it.

Question 11

Contraction of supply… + appearance.

Answer 11

Is when a decrease in the price of a good or service causes a decrease in quantity supplied. Showed by a downward movement down the existing curve.

Question 12

Expansion of supply + appearance

Answer 12

Is when an increase in the price of a good or service causes and increase in quantity supplied. Shown by a movement up the existing curve.

Question 13

Increase in supply movement…

Answer 13

A new curve further out

Question 14

Observations of increase in supply… (2)

Answer 14

Firms will produce more at a given price.

Firms supply a given quantity at a lower price than before.

Question 15

Decrease in supply movement..

Answer 15

New curve closer in.

Question 16

Observations after a decrease in supply.. (2)

Answer 16

Firms will supply less at a given price.

Firms will charge more for a given quantity.

Question 17

Examples of factors causing increase in supply… (5)

Answer 17

Fall in price of other goods.
Improvement in tech
Fall in cost of FOP.
Increase of available resources.
Favourable climatic conditions.

Question 18

Examples of factors causing decrease in supply (6)

Answer 18

Rise in price of other goods.
Certain tech no longer being available.
Rise in cost of FOP.
Decrease in quantity of resources available.
Regulations restricting the sale of a good because its risk to health and safety (eg fireworks).
Unfavourable climatic conditions.

Question 19

DEFINE Price elasticity of supply…

Answer 19

Measures the responsiveness of quantity supplied to a change in price. Calculated by (% change in quantity) / (% price change).

Question 20

Relatively elastic definition…

Answer 20

Rise in quantity supplied is proportionally greater than increase in price.

Question 21

Relatively inelastic definition…

Answer 21

Less than proportionate change in quantity supplied after a price change.

Question 22

DEFINE unit elastic

Answer 22

Quantity supply rises by the same proportion as the price increase.

Question 23

Perfectly elastic supply + appearance…

Answer 23

Firm supply infinite quantity at a particular price but offer nothing below it. Horizontal Line.

Question 24

Perfectly inelastic supply + appearance…

Answer 24

Firms will supply a given quantity regardless of the price.

Vertical line.

Question 25

Factors affecting elasticity of supply (3)

Answer 25

Time lags after a price change.
The ability to hold and store stock.
Excess capacity.

Question 26

How does TIME LAG AFTER A PRICE CHANGE affects elasticity… (4)

Answer 26

More time to respond - More elastic
Immediately after price change - almost perfectly inelastic (might try to put more staff on.
Short run - elasticity increases but still mostly inelastic.
Long run - increase inputs, increase machinery/plant size - relatively elastic.

Question 27

How THE ABILITY TO HOLD AND STORE STOCK impacts on elasticity of supply… (3)

Answer 27

Easier to hold stock - more elastic the supply.
Non-perishable products; store when price goes down and wait until upturn.
Perishable items - must sell before expiration.

Question 28

How EXCESS CAPACITY affects elasticity of supply… (3)

Answer 28

Excess capacity = not at full capacity.
Supply elastic when firms have excess capacity.
Respond more quickly to price change - use resources more intensly.