The Supply Of A Good

Question 1

Describe EU spending on agriculture

Answer 1

Importance of CAP and international trade policy (wto)

Importance of SUBSIDIES for agricultural food production

SINGLE FARM PAYMENT -biggest component of EU agricultural spending

2016 - 1.2 billion euro on SFP

Substantial payments also for rural development, forestry and environmental related schemes

Question 2

What are the factors affecting the supply of a good

Answer 2

SUPPLY FUNCTION can be drawn in 2 dimensions I.e we map the relationship between price and quantity supplied

POSITIVE development in a market can cause more to be supplied at all price. It can arise from….

• fall in costs - input prices, Labour and land

Introduction of SUBSIDIES or direct payment

Improvement in technology, better husbandry

A NEGATIVE development can mean less supplied at all price levels

Ie from rise in production costs such as raw materials and Labour

A reduction in subsidies

More COSTLY REGULATION

Question 3

What is supply and demand equilibrium ?

Answer 3

Combining the supply and demand curve for a product tells us something about the level of activity in the market

IE gives us an idea about the going price or MARKET CLEARING or price for a product

At price equilibrium the market is clearing eg Qs = Qp

In a FREE MARKET, prices will adjust to restore equilibrium

With EXCESS DEMAND for a product prices will be bid up

Where there is excess supply, prices will be bid downwards

RESTING PLACE will be market clearing price

Question 4

Example of price and demand equilibrium

Answer 4

Euro/ kg    Qd ,00 kg    Qs 
10                3.                 10
8                  5.                 8 
7                  6                  6
6                  8.                 5
5.                 12.                4 

At P= 7. The market is clearing

At P= 5, demand is a lot of higher than supply

At prices lower than Pe, QS QD, excess supply

In a free market prices will adjust to restore equilibrium