MICRO - LS9 - Supply

Question 1

Revenue definition

Answer 1

The income that a government (through tax) or company (through sales) receives

Question 2

Total revenue equation

Answer 2

Price x quantity

Question 3

What do firms do in a market

Answer 3

Supply goods and services

Question 4

Supply definition

Answer 4

The quantity of a good/service that firms are willing to sell at a given price over a given time period

Question 5

What does law of supply state

Answer 5

Ceteris Paribus:
- as price of good increases, quantity supplied increases
- as price of good decreases, quantity supplied decreases

Question 6

What does increase in price result in

Answer 6

• extension/expansion in supply shown through movement along supply curve

Question 7

What does a decrease in price result in

Answer 7

• a contraction in supply shown as a movement

Question 8

What does supply diagram assume

Answer 8

• firms are motivated to produce by profit
• the cost of producing a unit increases as output increases

Question 9

The conditions of supply

Answer 9

- costs of production
- price of other goods
- no of firms in the market
- weather
- technology
- goals of supplier
- government legislation
- taxes and subsidies
- producer cartels

Question 10

Costs of production

Answer 10

• if price increases but selling price stays the same less profits
• will put up price in order to avoid making a loss and so less is supplied at each price, meaning the supply curve will shift to the left
• If they have a decrease in their costs, then it will shift to the right

Question 11

Price of other goods

Answer 11

• Joint supply is where the production of one good automatically causes the production of another goods e.g. the production of beef automatically produces leather
• Therefore, if the price of beef rises, farmers will slaughter their cows and so will get more leather, causing a shift to the right and an increase in supply
• Competitive supply is where the production of one good prevents the supply of another e.g. if the farmer kills his cows, he can no longer produce the milk
• Therefore, the rise in the price of beef may cause a decrease in the supply of milk and a shift to the left.

Question 12

Weather

Answer 12

• For some goods, particularly agricultural goods, the supply is dependent on weather e.g. if the weather is good, more wheat will be produced so the curve will shift to the right. If the weather is bad, the producers won’t be able to supply as much wheat and so it will shift to the left.

Question 13

Technology

Answer 13

• If new technology is introduced then it will lead to a fall in production costs as there is higher productive efficiency
• This will encourage firms to lower prices or produce more goods for the same price and so the curve will shift to the right

Question 14

Goals of supplier

Answer 14

• If a supplier is motivated by helping society and providing a service, they may increase supply even when that doesn’t provide extra profit

Question 15

Government legislation

Answer 15

• If the government passes laws that mean more cars have to have catalytic converters, supply of cars with catalytic converters will increase
• High levels of regulation may increase costs and so decrease supply

Question 16

Taxes and subsidies

Answer 16

• A tax decreases supply and a subsidy increases supply by affecting the costs of production

Question 17

Producer cartels

Answer 17

• Some firms or countries come together in order to increase supply and therefore increase the price of their good to increase profit.

Question 18

Joint supply

Answer 18

• 2 or more foods that derive from a single production process, a change in the supply of one good leads to a change in the supply of a by-product

Question 19

Individual supply

Answer 19

• a producer’s supply of a good/service

Question 20

Market supply

Answer 20

• all producers’ suppliers to the market summed together

Question 21

Why does the supply curve slope upwards

Answer 21

• higher market prices motivate firms to supply more as they expect more profits
• producing more increases the marginal cost of production so firms need higher prices for cover these costs