Supply

Question 1

what is the law of supply?

Answer 1

• As the price increases so does the quantity supplied

Question 2

Why does the law of supply occur?

Answer 2

1) Existing firms supply more

2) Additional sellers - increases supply

Question 3

What is the example of the farmer used to answer why existing firms supply more?

Answer 3

e.g For a farmer at the original price its only marginally profitable to use land and not the less fertile land. However, at a higher price it becomes marginally profitable to use less fertile land

Question 4

What does a change in price cause the supply curve to do?

Answer 4

• causes a movement along the supply curve due to existing firms supplying more as well as additional sellers

Question 5

What is the determinant of supply?

Answer 5

The cost of production for a firm

Question 6

What causes the supply curve to shift?

Answer 6

1) Cost of production whether it increases or decreases

Question 7

What does an increase in price of production do to the supply curve?

Answer 7

• Causes it to shift to the left as there is a reduction in the quantity supplied

Question 8

What does an decrease in price of production do to the supply curve?

Answer 8

• Supply curve shifts to the right

Question 9

What are the determinants of production costs?

Answer 9

1) Input product prices - if there is an increase in input then it will cause a shift to the left as there will be an increase in the cost of production
2) Change in technology - A firm with new technology may be able to reduce cost of production and shift the supply curve to the right
3) Government policy - e.g increase in tax will cause the demand curve to shift to the left

Question 10

What is meant by joint supply?

Answer 10

e.g. If there is an increase in profitability of petrol, the diesel firm is likely to increase supply