4.1.3.3 The determinants of the supply of goods and services Quiz: AQA Economics, Unit 1

The 20 questions

1. A supply curve shows the relationship between:

   • price and quantity supplied, other things being equal.
   • price and quantity demanded, other things being equal, so the curve describes how buyers respond to price changes.
   • the number of workers and the output per worker in each firm, measured over the course of a year in the labour market.
   • income and the level of prices in the economy, which is the relationship that the supply curve uses to explain changes in output over time.

2. Why does a higher price provide an incentive for firms to expand production?

   • Because higher prices reduce demand for the good, which means that firms must produce more to keep their sales level in the market.
   • Because higher prices reduce firms' costs, so that each unit becomes cheaper to make and firms can produce a larger quantity at lower cost.
   • Because higher prices imply higher profits, which encourages firms to supply more.
   • Because higher prices make the supply curve shift to the left, so that firms are forced to contract their output to protect their margins.

3. Which of the following would cause the supply curve for a good to shift to the right?

   • A rise in an indirect tax on the good, which raises the cost of supplying each unit and shifts supply to the left.
   • A rise in the price of the good itself, which causes a movement along the supply curve rather than a shift of it in the market.
   • An improvement in technology that lowers production costs.
   • A rise in the costs of raw materials, which raises the cost of each unit that firms must produce and so reduces the quantity they supply.

4. Which of the following would cause the supply curve for a good to shift to the left?

   • A fall in the price of a substitute in production.
   • A rise in the costs of raw materials used in production.
   • A subsidy paid to producers of the good.
   • A fall in the number of firms in the market caused by new competitors.

5. A government gives a per-unit subsidy to producers of wheat. What is the effect on the supply curve for wheat?

   • It moves along the supply curve, because the price changes when the subsidy is paid to the producer of the crop in the market.
   • It shifts to the right, because the subsidy lowers costs of production.
   • It shifts to the left, because the subsidy raises production costs such as seed, fertiliser and machinery in the market.
   • It does not shift, because subsidies affect only demand for the product and have no direct effect on the output decisions of firms.

6. A rise in the indirect tax on a good is likely to:

   • shift the supply curve to the right, because the tax encourages firms to expand output to recover revenue lost to government.
   • shift the supply curve to the left, because the tax raises the cost of supplying each unit.
   • shift the demand curve to the left, because consumers respond to the higher tax by buying less of the good in the market at each price.
   • have no effect on the market, since indirect taxes are paid by consumers and do not change the decisions of the firms that supply goods.

7. Which of the following is a determinant of supply that is most likely to change over a short time frame due to weather conditions?

   • The cost of capital equipment, which firms buy in the long run and which changes only when new machinery is purchased in the market.
   • The output of agricultural products, such as a harvest affected by drought.
   • The number of consumers in the market, which changes the demand for goods rather than the quantity that firms are willing to supply.
   • Consumer tastes for the product, which shift the willingness of buyers to purchase the good at each price over a period of time.

8. A firm expects the price of its product to rise next year. What is the most likely effect on current supply?

   • Supply may fall now, as the firm holds stock to sell at the higher future price.
   • Supply is unaffected because firms ignore future prices and make decisions only on the basis of the current price in the market.
   • Supply always rises immediately, with no effect from expectations, because firms always produce at full capacity.
   • Supply becomes perfectly elastic at the current price, so that firms will supply any quantity demanded at the price they currently charge.

9. Which of the following is the correct description of the supply curve under perfect competition?

   • The supply curve is the marginal cost curve above the minimum average variable cost.
   • The supply curve is the average revenue curve, which shows the price the firm receives for each unit it sells in the competitive market.
   • The supply curve is the demand curve reflected in the price axis, so supply and demand always mirror each other.
   • The supply curve is the total cost curve, which shows the total cost of producing each quantity of output in the market over time.

10. Which statement correctly explains a movement along the supply curve rather than a shift?

    • A movement occurs when the price of raw materials rises, because the cost of each unit of output increases for all producers in the market.
    • A movement occurs when the good's own price changes, with other determinants constant.
    • A movement occurs when the government imposes an indirect tax, which changes the amount that firms are willing to supply at each price.
    • A movement occurs when a technology improvement occurs, which lowers the costs of production for every firm in the industry at once.

11. Which of the following is a determinant of supply that affects the number of firms in an industry?

    • A change in the tastes of consumers.
    • The entry of new firms attracted by high profits.
    • A change in the price of complementary goods bought by consumers.
    • A fall in consumer incomes.

12. An increase in the price of oil, an input to plastic production, is most likely to:

    • shift the demand curve for plastic to the left, because buyers of plastic respond to higher oil prices by buying less of the product.
    • leave the supply curve for plastic unchanged, since oil is only one of many inputs and its price has no effect on the cost of the product.
    • shift the supply curve for plastic to the right, because firms respond to higher input costs by expanding production to cover their losses.
    • shift the supply curve for plastic to the left, because input costs rise.

13. Which statement is the best evaluation of the claim that a rise in price always leads to an increase in supply?

    • The claim is correct because price is the only determinant of supply, and other factors leave the supply curve unchanged.
    • The claim is correct only for goods with perfectly elastic supply, where any price rise gives an unlimited quantity increase.
    • The claim is incorrect because supply never responds to prices, so a rise in price has no effect on quantity offered.
    • The claim is incomplete, since quantity supplied rises along the curve but supply can also shift with costs or technology.

14. A change in the number of sellers in a market is best described as:

    • a shift of the supply curve.
    • a change in the price elasticity of supply only.
    • a movement along the supply curve.
    • a change in the demand curve.

15. Why might a firm's supply be more responsive to a price increase in the long run than in the short run?

    • Because firms have time to adjust capacity, enter the market and change factor inputs.
    • Because consumers have more time to adjust their demand, which means that firms must respond to changes in demand in the long run.
    • Because the short run has no costs, so that firms can respond instantly to any price change without incurring any expense at all.
    • Because supply never changes over time, so the long run response to a price increase is the same as the short run.

16. Which of the following would be an example of an external shock that shifts the supply curve for a commodity?

    • A rise in its price in the market, which moves firms along the supply curve rather than shifting it to a new position in the market.
    • A sudden disruption to supply caused by a natural disaster in a major producing region.
    • A rise in the demand for a substitute, which affects the demand curve for the commodity and does not shift the supply curve directly.
    • A change in consumer income, which affects the demand for the commodity rather than the supply side of the market.

17. A government places a regulation that raises the minimum standards firms must meet, increasing production costs. Which of the following is the likely result?

    • No effect, because regulations apply to demand only and have no bearing on the production decisions of firms in the industry.
    • Supply shifts to the left, as costs rise and firms supply less at each price.
    • Demand shifts to the left, as consumers are protected by the regulation and so buy less of the product at each price in the market.
    • Supply shifts to the right, as firms gain credibility with consumers and so sell more output at each price in the market.

18. Which of the following best explains why the supply of a good may increase following a sustained rise in its price?

    • Because higher prices cause the demand curve to shift left, which forces firms to produce more in order to keep their sales steady.
    • Because higher prices reduce costs of production, which allows firms to supply a larger quantity at a lower total cost in the market.
    • Because higher prices raise the profit from each unit and encourage firms to expand output or enter the market.
    • Because higher prices make firms reduce output, so that they can protect their profit margins by selling less of the good in the market.

19. Which of the following would decrease the supply of a good, shifting the supply curve to the left?

    • A rise in the number of firms producing the good, which increases quantity supplied at each price in the market.
    • A reduction in the costs of raw materials, which lowers the cost of each unit and so raises supply at every price.
    • A fall in the price of the good, which causes a movement along the supply curve rather than a shift of the curve to the left.
    • An increase in the wages paid to workers who make the good, which raises the cost of production for every unit made by the firm.

20. Which of the following statements about supply in the short run is correct?

    • Supply is always perfectly elastic in the short run, because firms can supply any quantity at the current market price without any cost.
    • Supply in the short run is usually less elastic than in the long run, because firms cannot fully adjust their capacity or inputs quickly.
    • Supply in the short run is unaffected by price, since firms produce the same output whatever price they receive for goods in the market.
    • Supply in the short run is always more elastic than in the long run, because capacity can be changed within a few days by firms.

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