Unit 2.2: Supply

Question 1

Supply

Answer 1

The quantity of a good or service that producers are willing and able to supply in the market at different possible prices, ceteris paribus

Question 2

Law of supply

Answer 2

States that there is a positive relationship between the price of a good and its quantity supplied over a particular period, ceteris paribus.

“Increase in supply = supply curve shifts to the right”

“Decrease in supply = supply curve shifts to the left”

Question 3

Non-price determinants of supply

Answer 3

STORES:
- Subsidies and taxes
- Technology
- Other related goods’ price (competitive goods, joint supply)
- Resource costs
- Expectations of prices (for producers)
- Size of the market & number of suppliers

Question 4

Joint supply

Answer 4

Two or more goods are derived from the same resource. It is not possible to produce more of one without producing more of another.

Mutton is the main product from sheep. Wool is the by-product (less important) of sheep.

e.g. Lamb and wool. (↑ PL = ↑Sw)

Question 5

Competitive supply

Answer 5

Two or more goods “compete” for the same resources in the production process.

E.g If price of apple increases, supply of oranges will decrease, ceteris paribus. (competitive goods because they compete for the same resource of land)

(↑ Pa = ↓ So)
(↑Pa = ↑Sa, ↑Sa = ↓So)