Supply Curve

Question 1

Why is the supply curve upward sloping ?

Answer 1

1. Upward sloping from left to right can be explained by
   ! Rising marginal cost of production when a firm produces more output
2. Reflecting that a higher price is needed to cover its higher MC
3. MC = opportunity cost incurred when a firm produces one more unit of output

Question 2

How will a non-price factor affect the supply curve ?

Answer 2

It will cause a shift

an increase/decrease in supply

Question 3

What are the 6 non price factors ?

Answer 3

1. Changes in cost of production
   - changes in cost of factor input
   - changes in state of technology
   - changes in government policies
   - imposition of in direct tax
   - provision of subsidise to producers
2. Sellers expectations of future price
3. Changes in number of sellers ( as a whole )
4. Changes resulting from nature or abnormal circumstances
5. Changes in price of related goods
   - competitive supply ( chicken and egg )
   - joint supply ( cow and cow food )
6. Firms objective

Question 4

How does the change in state of technology affect the supply curve ?

Answer 4

The change in state of technology reduces the UNIT cost of production. More output will be produced with the same amount of input.

Price of factors remains the same = lower unit cost of production = higher potential profit per unit.

Hence, increase in supply = rightward shift