3.2

Question 1

Explain supply

Answer 1

• The amount of good or service that producers are willing and able to provide

Question 2

What does market supply refer to?

Answer 2

• The total output of all individual suppliers of a particular good or service

Question 3

Explain producer objectives

Answer 3

• Producers make decisions as to how much they are willing and able too supply at any given price

Question 4

List three producer objectives [3]

Answer 4

• Profit maximisation
• Revenue or sales growth
• Market dominance

Question 5

Why is market price crucial? [2]

Answer 5

• It signals producers to increase or decrease supply
• Acts as an incentive

Question 6

What is a supply curve a graphical representation of?

Answer 6

The relationship between quantity supplied and price, for all suppliers in the market

Question 7

Supply curves normally slope upwards from BLANK to BLANK. Why?

Answer 7

• Left to right
• More will be supplied at a higher price

Question 8

What does a higher price attract suppliers to do?

Answer 8

Supply more

Question 9

What may increase once suppliers begin producing more?

Answer 9

Costs — however if revenue grows more than costs, than profits increase

Question 10

Explain the short run [2]

Answer 10

• A time period in which the quantity of at least one component in production cannot be changed
• EXAMPLE: Instead of hiring more workers, planting more corn or working overtime

Question 11

Explain the long run

Answer 11

• The long run is a time period in which the quantities of all factors of production can be changed
• EXAMPLE: Purchasing machinery to enable them to supply large quantities of corn

Question 12

Ultimately, what’s the difference between the long run and short run? [3]

Answer 12

• In a short run, a price change causes a move along the supply curve
• In the long run, a move to a new supply curve often occurs when prices have continued to grow
• Long run also occurs when other factors that aren’t price become apparent

Question 13

List five other determinants of supply [5]

Answer 13

• Cost of production
• State of technology
• Government intervention
• Entry and exit of firms
• External shocks

Question 14

What does a decrease in quantity supplied do to the supply curve?

Answer 14

Makes the supply curve shift to the left

Question 15

What does an increase in supply do to the supply curve?

Answer 15

Makes the supply curve short to the right