Supply — Edexcel A-Level Business
Test yourself on Supply with PEARSON EDEXCEL A-Level practice questions.
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Supply explained
Supply is what producers are willing and able to offer at each price, so the conditions of supply are the things that change that willingness at every price at once.
Read the full explanation
Dearer wages, energy or raw materials push the curve left and upward, while new technology, a better factory layout or automation push it right by cutting cost per unit. A levy on soft drinks behaves like a cost and moves supply left by the tax per unit, a subsidy on electric vehicles or renewable generation moves it right, and shocks from weather, war or a blocked shipping lane can strip out capacity overnight. Managers use this to anticipate input costs, to choose sourcing and hedging policies, and to judge how much of a cost rise can be passed on before volume collapses.
Your focus
- a) Factors leading to a change in supply: changes in the costs of production; introduction of new technology; indirect taxes; government subsidies; external shocks
Supply exam tips
Marking Points
- Identifying the specific cost or policy change in the case and stating the direction of the shift with its reason, so a higher cost per unit means supply moves left.
- Carrying the shift through to the new equilibrium price and quantity and then to the margin and output of the named business.
- Explaining incidence, so how much of an indirect tax lands on the consumer depends on price elasticity of demand, and inelastic demand means most of it is passed on.
- Distinguishing permanent changes, such as technology, from temporary ones, such as a harvest failure, when judging the right response.
Examiner Tips
- 💡Cost shocks are a favourite context, so be ready to argue about hedging, dual sourcing, buffer inventory and renegotiated supplier contracts as management responses.
- 💡Where a tax or a subsidy appears, markers expect the phrase shift in supply plus a comment on who bears the burden.
- 💡The judgement usually rests on whether the change is short lived and on how competitive the market is.
Common Mistakes
- Shifting the demand curve when it is the costs faced by producers that have changed.
- Treating a government subsidy as free money for the firm, when it is designed to lower price and raise output and can be withdrawn at any budget.
- Assuming every cost increase is passed straight to customers regardless of competition and elasticity.