topic 3 - theme 1

Question 1

what is supply?

Answer 1

the quantity of a good or service that firms are willing and able to produce at different prices in a given time period

Question 2

what is the competitive market?

Answer 2

a market in which individual firms cannot influence the price of the good or service being traded

Question 3

what are some examples of competitive markets?

Answer 3

• fruit and vegetable market stalls
• restaurants

Question 4

what influences supply?

Answer 4

• Cost of production
• availability of factors of production
• climatic conditions
• tax (on a good or service)
• amount of suppliers in the market
• subsidies

Question 5

what happens if a supplier leaves the market?

Answer 5

causes a decrease/ shift on the supply curve

Question 6

what is the price elasticity of supply?

Answer 6

measures the extent to which the quantity supplied of a good changes in response to a change in price of that good

Question 7

how to calculate PES

Answer 7

% change in quantity supplied/ % change in price

Question 8

what happens when supply is elastic?

Answer 8

producers can increase production easily without a rise in cost or a time delay

Question 9

what happens when supply is inelastic?

Answer 9

firms find it hard to change their production levels in a given time period

Question 10

what determines PES?

Answer 10

• artificial limits on supply
• raw materials availability
• inventory (stock) available to meet demand
• time frame allowed
• spare production capacity available
• substitution of factors of production

Question 11

what happens to quantity supplied if price rises by 10% when PES is price elastic (PES>+1)?

Answer 11

quantity supplied will increase by more than 10%

Question 12

what happens to quantity supplied if price rises by 10% when PES is price inelastic (PES<1)?

Answer 12

quantity supplied will increase by less than 10%

Question 13

what happens to quantity supplied if price rises by 10% when PES is unit elastic (PES=1)?

Answer 13

quantity supplied will increase by 10%

Question 14

what happens to quantity supplied if price rises by 10% when PES is perfectly inelastic (PES = 0)?

Answer 14

quantity supplied will not change

Question 15

what happens to quantity supplied if price rises by 10% when PES is perfectly elastic (PES = infinity)?

Answer 15

firms can produce infinite quantities