Supply

Question 1

Define the law of supply.

Answer 1

The law of supply states that with all things constant (‘ceteris paribus’), quantity produced is directly proportional to the price of a product.

1. Market price decrease → quantity produced decreases
2. Market price increase → quantity produced increases

Question 2

Define the relationship between individual and market supply curves.

Answer 2

Individual supply curves represent the quantity supplied by a single producer.

Market supply curves represent the aggregate of all individual supply curves in the market.

Question 3

Outline non-price factors that affect supply.

Answer 3

Costs of production - expenditure determines amount of production.

Technology - technological advancement determines economic output.

Price of related goods - a producer may monitor changes in price action of goods they are capable of producing to maximise profits.

Expectations of producers - future market conditions may affect a producer’s ability to supply in the short-term.

Number of sellers - number of producers in market will determine market supply curve.