Unit 1.22

Question 1

What is supply?

Answer 1

The number of goods/services a business is willing to supply

Question 2

What is the relationship between supply and price?

Answer 2

There is a direct relationship:
- As price increases the quantity supplied increases too
- As price decreases, the quantity supplied decreases too

Question 3

What direction does the supply curve go?

Answer 3

• upward slope from left to right
• to show the direct relationship between supply and price

Question 4

What does a change in price cause?

Answer 4

-a movement along the supply curve

Question 5

What do non-price factors affecting supply cause?

Answer 5

-a shift in the supply curve left or right

Question 6

What are the non-price factors affecting supply?

Answer 6

1) Changes in cost of production

2) New technology

3) Indirect taxes

4) Government subsides

5) external shocks

Question 7

How do changes in the cost of production affect supply?

Answer 7

An increase in the cost of production makes it more expensive to produce each unit, so a business will be able to produce fewer units at that given price

Question 8

How do external shocks affect supply?

Answer 8

-An unexpected event can change supply

-The outbreak of Covid-19 caused many hotels, bars and restaurants to close down

This shifted the supply curves for hotels, bars and restaurants to the left

Question 9

1a) What are government subsidies?
1b) And how do they affect supply?

Answer 9

1a) A producer subsidy (financial aid) given by the government to businesses will reduce the cost of production

1b) A subsidy to the largest battery producer in the UK lowers the cost of production for electric car manufacturers

This has shifted the supply curve for electric vehicles to the right

Question 10

How does new technology affect supply?

Answer 10

-advances in technology will lead to lower costs of production, and businesses will be able to produce more units at a given price

Question 11

How do indirect taxes affect supply?

Answer 11

-The government increases indirect taxes on businesses, which causes an increase in the cost of production, as firms have to pay extra costs, meaning they can produce less at a given price

-The rate of VAT increased from 17.5% to 20% in the UK in 2011

This shifted the supply curves for all businesses to the left

Question 12

What are indirect taxes?

Answer 12

-taxes on a businesses goods and services and not on its income/profits
-e.g VAT