Supply

Question 1

What is the law of supply?

Answer 1

As price increases, quantity supplied also increases. As price falls, quantity supplied also falls.

Question 2

What is market supply?

Answer 2

The sum of all individual firms’ supplies for a good.

Question 3

What are the non-price determinants of supply?

Answer 3

• Cost of factors of production
• Changes in production technology
• Price of related goods
• Producer expectations
• Indirect taxes and subsidies
• Number of firms in the market
• Unpredictable events

Question 4

Rightward and leftward shifts of the supply curve.

Answer 4

Rightward- increase in supply

Leftward- decrease in supply

Question 5

Cost of factors of production

Answer 5

The firm buys various factors of production that it uses to produce its products.

Question 6

Changes in production technology

Answer 6

New, improved technology lowers the costs of production , making production more profitable.

Question 7

Price of related goods

Answer 7

Competitive supply- production of one of two or more products by a firm; goods compete for use of same resources.
Joint supply- production of goods that are derived from a single product; not possible to produce one without the other.

Question 8

Producer expectations

Answer 8

Expects price to rise- firms withhold some current supply, to sell it at a higher price in future.
Expects price to fall- increase supply to take advantage of the current higher price.

Question 9

Taxes

Answer 9

Firms treat taxes as a cost of production.

Question 10

Subsidies

Answer 10

Payment made to a firm by the government. Opposite effect of tax.

Question 11

Shocks

Answer 11

Sudden unpredictable events affecting supply, such as weather conditions.