1.3.2 Supply

Question 1

Supply

Answer 1

The quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period

Question 2

Supply curve

Answer 2

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

Question 3

what is quantity supplied

Answer 3

Quantity supplied is the amount sellers are willing and able to offer for sale at a single price

Question 4

The short run

Answer 4

The time period in which the quantity of at least one component in production cannot be changed

Question 5

The long run

Answer 5

The time period in which the quantities of all the factors of production can be changed

Question 6

supply and producers/entrepreneurs (3)

Answer 6

• In both supply and demand, the market forces impact the quantity of a product supplied in the marketplace.
• Producers have mixed objectives:
  The ability to earn profits and income has an influence on the choices made by all suppliers.
• Potential profits provide an incentive to supply

Question 7

Describe the supply curve

Answer 7

• When plotting supply curves, quantity is on the x-axis and price is on the y-axis

–> graph has a POSITIVE correlation as price and quantity supplied have PROPORTIONAL RELATIONSHIP

–> Supply curves usually slope upwards from left to right, showing that less will be supplied at a low price, and more at a higher price

Question 8

what happens when the market price of a product increases (3)

Answer 8

• producers expand their supply onto the market, and supply more
• Even if their costs of production increase when producing more, a higher price increases revenue from sales
• If the revenue increase is greater than the cost increase, there is potential for higher profit → this incentive attracts extra supply (eg, more supply, more firms entering the market)

Question 9

how does supply cycles work

Answer 9

• When something is just newly produced its price is high and the quantity supplied is high too
• In the long term, the price will probably lower and profitability will lower
• Eventually price and output are likely to get to a steadier level

Question 10

how do the short run and long run relate to movements along the supply curve

Answer 10

• In the short run, a price change causes a move along the supply curve
• In the long run, a move to a new supply curve is possible, but a shift in supply is not due to price change, but another factor

Question 11

name 5 factors other than price that can affect quantity supplied

Answer 11

1. changes in costs of production
2. introduction of new technology
3. indirect taxes and subsidies
4. change in the number of firms in an industry
5. external shocks
6. efficiency

Question 12

Costs of production and supply

Answer 12

• If costs increases (and nothing else changes), supplying the market becomes less profitable –> Profit decrease = can purchase less raw materials, pay less workers etc.
• Producers want a higher price to supply any quantity, so the supply curve is likely to move up and left

Question 13

State of technology and supply

Answer 13

• Even though the latest tech is expensive, its success normally depends on reducing cost per unit
• Successful, new tech will shift the supply curve to the right → an important component of economic growth
• this is because new tech can make production efficient, increasing supply

Question 14

indirect tax + subsidies and supply

Answer 14

• Intention can be to reduce sales, to raise tax revenue, or both
• The effect of an indirect tax on a product will be to increase the price to the customer (ie cigarettes, alcohol, sugar)
• Many businesses feel the impact of taxes on fuel, but farmers have benefitted from subsidies offsetting some costs

Subsidiaries: where the government encourages production by making materials cheaper or giving money/grants

Question 15

Changes in the number of firms and supply

Answer 15

• A profitable market attracts more producers (entry) → more supply
• If a product becomes unprofitable firms will leave the industry and supply will decrease

Question 16

external shocks and supply

Answer 16

Random events that affect production ie weather, natural disasters and human activity

Question 17

efficiency and supply

Answer 17

• leads to faster production (better skilled workers, better machinery) leading to more supply in a given time

Question 18

describe the labour market and work (3)

Answer 18

• The cost of working is less centred on a money cost and more on opportunity cost ie leisure time
• If we supply unskilled labour our wage would be lower, as there is a plentiful supply of labour so buyers/employers can afford to pay relatively little and still receive workers
• Longer hours are often compensated by higher overtime payments

Question 19

describe the labour market for higher skilled individuals

Answer 19

Higher earnings are differentiated by:
Training
Skills
Qualifications
Experience
Talent

The supply of this labour is limited (e.g. plastic surgeons) because these attributes are harder to find in a single individual
–> Supply can also be low because the labour for the work is more unpleasant or dangerous.

Question 20

describe the supply curve for labour

Answer 20

• There is likely to be a higher supply of labour at a high price than a low one, like products (maximising profits for YOURSELF)
• Higher paid jobs (higher rewards) attract more supply (could lag if training or qualifications are required)
• A supply curve for labour should also slope upwards from left to right

Question 21

society and the labour market

Answer 21

• Depends on education and training → can be expensive, but can be subsidised by the government
• It is in the society’s best interest for workers to be more skilled, productive and higher paid
• Work is not just transaction → some can get enjoyment from jobs and how we contribute to society
• Like entrepreneurs, we have mixed objectives but nearly all find the income from work useful