1.2.4 Supply Quiz: Pearson Edexcel Economics A, Unit 1

The 20 questions

1. What is the law of supply?

   • Other things being equal, a rise in price leads to an increase in quantity supplied by producers.
   • Quantity supplied is always equal to quantity demanded at every price level in the market.
   • Supply is fixed regardless of price, so changes in price affect only the quantity demanded.
   • A rise in price always leads to a fall in the quantity supplied by producers in the market.

2. A movement along a supply curve is caused by:

   • A change in the price of the good itself.
   • A change in the number of firms in the industry, which changes supply at every price.
   • A change in the cost of raw materials, which shifts the whole supply curve to a new position.
   • A change in government subsidies to producers, which lowers their costs of production.

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

   • A rise in the price of a substitute in production, which reduces supply of the good.
   • A fall in the cost of raw materials used in production.
   • A rise in the price of the good, which raises the quantity supplied along the curve.
   • A rise in consumer incomes for a normal good, which increases demand rather than supply.

4. Which of these would cause the supply curve to shift to the left?

   • A rise in consumer demand for the product, which increases the quantity sold at each price.
   • An increase in indirect taxes on producers, which raises the cost of supplying each unit.
   • A technological improvement that lowers production costs for all firms in the industry.
   • A fall in the price of the good, which reduces the quantity supplied along the curve.

5. Which factor is a condition of supply, meaning it shifts the supply curve?

   • The number of firms in the industry.
   • The price of the good itself, which moves producers along the existing curve.
   • The level of consumer income in the economy as a whole.
   • The quantity demanded of the good by consumers in the market.

6. A firm's supply of a product increases when the government gives it a subsidy. How is the supply curve affected?

   • It moves up along the same curve, since the subsidy raises the price received by firms.
   • It shifts to the left, since subsidies reduce the output that firms are willing to offer.
   • It shifts to the right, since the subsidy lowers costs and firms supply more at each price.
   • It does not change, since subsidies affect demand rather than supply in the market.

7. Which best describes the difference between a change in supply and a change in quantity supplied?

   • Both terms describe the same effect, since any change in output shifts the supply curve in the market.
   • A change in supply is a movement along the curve caused by price, while a change in quantity supplied is a shift of the curve.
   • A change in supply is caused only by consumer demand, while a change in quantity supplied is caused by government policy.
   • A change in supply is a shift of the whole curve from non-price factors; a change in quantity supplied is a movement along it from price.

8. A new technology lets firms produce the same output with fewer workers and less energy. What happens to the supply curve?

   • It moves up along the existing curve, since the new technology raises the price of the good.
   • It shifts to the left, since fewer workers means lower output at every price in the market.
   • It shifts to the right, since firms can supply more at each price with lower costs.
   • It does not change, since technology affects demand for inputs rather than the supply of the good.

9. A farmer's supply of wheat falls after a drought. Which description is correct?

   • Supply does not change, since a drought affects only the quantity demanded by consumers of wheat.
   • Supply shifts to the right, since drought raises the price of wheat and so raises output.
   • Supply shifts to the left, since the drought reduces the output the farmer can offer at each price.
   • Supply moves along the curve to a higher price, since the drought raises the price received for wheat.

10. Which factor is most likely to increase the quantity supplied of a good in the short run?

    • A fall in the price of the good, which encourages producers to supply more to the market.
    • A fall in the price of a complement in production, which reduces the cost of making the good.
    • A rise in consumer tastes for the good, which increases demand rather than the quantity supplied.
    • A rise in the price of the good, which encourages producers to supply more from existing capacity.

11. Explain why the supply curve for a good usually slopes upwards from left to right.

    • Supply curves slope upwards only because governments set minimum prices for every good in the economy.
    • Higher prices give producers an incentive to supply more, and rising marginal costs mean firms need a higher price to produce more.
    • Higher prices reduce the cost of production, so firms are willing to supply less at higher prices in every market.
    • Higher prices reduce the quantity demanded, so producers must reduce supply to match consumers in the market.

12. Which of these is a possible cause of a fall in supply of agricultural goods?

    • A rise in advertising by food companies, which increases demand for their products.
    • Bad weather that reduces the yield of crops from farmland in the season.
    • Higher consumer incomes, which increase demand for food across the economy.
    • A rise in the market price of the food, which raises the quantity supplied along the curve.

13. A firm finds that its supply increases when the price of its product rises. Which concept does this illustrate?

    • The principle of diminishing returns, in which output falls as more inputs are added.
    • The law of supply, in which quantity supplied rises as price rises, other things being equal.
    • The law of demand, in which quantity demanded falls as price rises, other things being equal.
    • The concept of price elasticity of demand, which measures the response of quantity demanded to price.

14. Why might the supply of a good be less responsive to price changes in the short run than in the long run?

    • Supply is not affected by price at any time, only by government regulation in the economy.
    • Consumers have fixed budgets in the short run, so supply cannot respond to any price change.
    • Firms cannot quickly change capacity, labour or inputs in the short run, so output responds more slowly to price.
    • Firms can change all factors of production instantly in the short run, so supply is always fully responsive.

15. A rise in the price of a good used as an input in producing another good will most likely have what effect on the supply of that other good?

    • Supply is unaffected, since input prices influence only the demand for the input rather than the supply of output.
    • Supply shifts to the left, since production costs rise and firms supply less at each price.
    • Supply moves along the curve to a higher quantity, since the input price rise increases output.
    • Supply shifts to the right, since the higher input price makes the other good more profitable to produce.

16. Which statement about the supply curve is correct?

    • It shows the quantity producers are willing and able to supply at each price, other things being equal.
    • It shows the total revenue of firms at each level of output in the market.
    • It shows the quantity consumers are willing and able to buy at each price, other things being equal.
    • It shows the equilibrium price at which quantity supplied equals quantity demanded in the market.

17. A government introduces a minimum price above the equilibrium price for a good. What happens to producers' incentive to supply?

    • Producers are willing to supply less at the higher price, which shifts the supply curve to the left.
    • Producers are unaffected, since minimum prices change only the demand side of the market.
    • Producers stop supplying the good, since any price above equilibrium makes production unprofitable.
    • Producers are willing to supply more at the higher price, which moves them along the supply curve.

18. Which of these best describes the effect of a fall in the price of a good used in producing a substitute in production?

    • It shifts the supply curve of the good to the right, since firms are attracted to the more profitable product.
    • It does not affect supply, since production decisions depend only on the price of the good itself in the market.
    • It shifts the supply curve of the good to the left, since firms reduce production of the good in every case.
    • It moves along the supply curve, since the price of the substitute input affects only the quantity supplied.

19. Evaluate: why might the supply curve for agricultural goods be more difficult to shift quickly than the supply curve for manufactured goods?

    • Agricultural supply is always fixed, so no factor can shift it in any season, unlike manufacturing supply.
    • Manufactured goods are always produced at zero cost, so their supply curves shift instantly in response to any price change.
    • Agricultural goods have no producers, so their supply cannot be shifted by any change in cost or price.
    • Farming output depends on seasons, land and weather, so supply responses to price and cost changes take longer than in most manufacturing.

20. Which combination of changes would most likely cause a rightward shift in supply for a product?

    • A fall in production costs together with a government grant to producers.
    • A rise in the price of a complement together with a rise in consumer tastes for the product.
    • A rise in indirect taxes on producers together with a fall in the number of firms in the market.
    • A rise in consumer incomes together with a fall in the price of the product itself.

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