Topic: Theory of Supply

Q1

Supply refers to the quantity of goods and services which firms are willing and able to sell at a given
price.

Cross out the wrong option:

- The supply curve is upward/downward sloping

- …and so as the price rises, quantity supplied should rise/fall causing a movement along the
supply curve
- this shows that there is a positive/inverse relationship between price and quantity supplied
- This is because firms are profit maximisers so firms will supply more/less as it becomes more
profitable to do so

Q2

Using the data below and ensuring that you label everything carefully, plot the supply curve and
answer the questions below

Price (£) Quantity Supplied

2 10
4 20
6 30
8 40

What is the quantity supplied at £5……………………………………..

Show this on the diagram

If price rises from £5 to £7, what is the new level of quantity supplied?

Cross out the wrong option: …so if price rises we see an expansion/contraction along the supply
curve

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Topic: Theory of Supply

Q3

As we saw above a change in price causes a movement along the supply curve. However, other
factors cause a shift in or out of the supply curve. Complete the table below to show whether supply
shifts in or out

Factor Supply shifts in or out?

A fall in energy bills Shift out
A rise in wages Shift out
An introduction of a subsidy Shift in
A rise in indirect tax Shift in

Q4

Using a diagram, explain the effect of an increase in wages and the introduction of an indirect tax on
a firm (assume that price stays constant) by filling in the gaps below.

Explanation:

“Both factors are likely to reduce the costs of production. This will reduce the incentives for firms to
produce. As such, the diagram shows a shift to the left of the supply curve from S1 to S2 and
indicates that there is a reduction in quantity supplied at every price.

Choose from: reduce, increase, production, shift, left, price, reduction

Q5

Imagine you are a farmer producing wine. List the factors which bring about a shift out in your
supply curve (price is constant).

Factors that can shift the supply curve for goods and services, causing a different quantity to be
supplied at any given price, include input prices, natural conditions, changes in technology, and
government taxes, regulations, or subsidies.

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