1.2.2 Supply

Question 1

Supply

Answer 1

The number of goods and services producers are willing and able to supply at any given price, over a period of time.

Question 2

Relationship between price and quantity supplied

Answer 2

At higher prices, firms are more likely to cover their costs.
At this point the firm will be making a profit.
Firms are unlikely to produce, if they are making a loss, particularly in the long term.

Question 3

The supply curve

Answer 3

A graphical representation of the relationship between quantity supplied and price, for all suppliers.

Price changes cause a movement along the curve.

Direct relationship.

Question 4

Shifts in the supply curve

Answer 4

A change in any factor other than price e.g. new technology is shown by a shift in the supply curve.

An increase in supply can be seen by a shift in the supply curve to the right.

Question 5

Determinants of supply

Answer 5

1. Changing costs of production.
2. Technology.
3. Prices of other goods and services.
4. Government policy.
5. External shocks.

Question 6

Changing costs of production

Answer 6

Costs of production are created by the price of inputs i.e. factors of production.

• If costs of production increase it will become more expensive to supply the product so firms will reduce output.
• If costs of production fall it will be cheaper to supply a product, there will be an increase in supply.
• Improvements in technology can help to reduce costs or production.

Question 7

Technology

Answer 7

Technological progress has meant that firms can produce in a more efficient and cost effective way.

• Improved large scale machinery allows fixed costs to be spread over greater output making cost per unit cheaper.
• As technology improves, firms find it profitable to supply more.

Question 8

Prices of other goods and services

Answer 8

Degree of competition in the market will impact on supply.
- As more firms enter the industry the supply curve will shift to the right causing increased supply.
- If a product becomes unprofitable businesses will leave, and supply decreases.

Question 9

Government policy

Answer 9

Indirect taxes = Those placed on goods and services produced by individuals and firms.
Indirect taxes make it more expensive to produce so quantity supplied will decrease.

Subsidies = Finance provided to producers to encourage then to produce goods and services.
Subsidies will make it cheaper to produce a product, so quantity supplied will increase.

Question 10

External shocks

Answer 10

Unexpected events that are outside of a businesses control but have a direct impact on the level of supply.
e.g. natural disasters, terrorist attacks, outbreak of disease.