1.2.

2 Supply
AS Edexcel New Specification 2015 Business

By Mrs Hilton for

 From the specification
• a) Factors leading to a change in supply:
– changes in the costs of production
– introduction of new technology
– indirect taxes
– government subsidies
– external shocks
 Lesson Objectives
• To be able to discuss the main factors that
lead to a change in quantity supplied

• To be able to answer sample exam questions

based on the topic area
 What is Supply?
S

p
Price

Quantity Supplied
Guidance from
Edexcel
 What is Supply?
S

p
Price

Quantity Supplied
 Starter Put the right pair below the tick

• Which of these is
correct and which is
wrong?
Price of
oil
Supply increases
goes
down Minimum
Quantity wage is
supplied The price more
decreases of oil is
raised
Price of
oil goes
up
 Definition of
• Supply is measured in terms of the quantity
of a good or service that a producer is willing
and able to make available on the market, at
a given price, over a given period of time.
 What is supply?
• What happens to quantity supplied as price
increases?
S
Price

q
Quantity Supplied
 What is supply?
• What happens to quantity supplied as price
increases?
– There is an extension of supply – movement along
the curve

• What happens to quantity supplied as price

falls?
–There is a contraction of supply – movement along the
curve
Why does the supply curve slope upwards?

Profit • When price rises it becomes more

profitable for businesses so they
Motive supply more

Production • When a firm expands, costs tend to

rise, a higher price is needed to cover
and costs these extra costs

New • Higher prices create an incentive for

other businesses to enter the market
entrants
What causes the Supply Curve to shift?

Cost of
Changes in the production
price of Changing
complement exchange
goods rate

Shift in
Changes in
Supply
the price of Changes in
substitute technology
goods

Climate Government
changes taxes and
subsidies
Changes in the costs of production
• If the costs of production increase (for example)
– Due to rise in raw materials
– Rise in minimum wage
– Rise in overheads
– Rise in rent or mortgage rates on premises
• Then the amount supplied will decrease as less
profit will be made
• Businesses will switch to production of more
profitable products (profit signalling mechanism at
play here)
Article: The future of chocolate – why cocoa production is at risk
 Draw me…
• A supply graph showing what has happened to
supply
• A demand graph showing what has happened
to demand
• If you can…..
– A supply and demand graph showing what has
happened in the market
 Introduction of new technology
• New technology means that more goods can
be supplied
– Mechanisation and automation of production
processes means supply can increase
– Mass production methods improved to increase
capacity

Watch a video on how luxury

chocolates are made
How much of the video
process is by hand and how
much is automated by
technology?
 Indirect taxes

When the government increases tax on goods

such as petrol then supply will decrease

VAT / Customs tax / Excise tax are all indirect

taxes and when applied to goods it makes
supplying them less attractive. This can lead
to a decrease in supply….
 Government subsidies
• This is a payment from the government to encourage
more suppliers to enter the market and to supply more.
With a subsidy there is an increase in supply.

• For example the Government pays subsidies to wind farm

manufacturers to erect turbines offshore in the UK. This
adds about £18 a year to a UK householder’s energy bill.

• Without these subsidies not enough turbines would be

built.
What is the impact on the energy market of
a subsidy for wind turbines?
 External shocks
• Changes in oil price
• Change in tax rate
• Changes in labour laws (e.g. length of working
week)

For example if the cost of oil increases this

increases cost of production, and may lead to job
losses or cost cutting, and will result in a decrease
in supply
 Plenary game:
Increase or decrease in supply?
1. Increase in oil price
2. Increase in minimum wage
3. Increase in orders
4. Increase in productivity
5. Increase in VAT rate
6. Decrease in inflation
7. Introduction of robots
8. Introduction of new labour laws
Sample questions
 Sample question 1
10 mark levelled question
Evaluation required (worth 3 marks)

Case study on next slide

 Tip: Use the numerical data given in the
question to back up the points that you wish to
make. This will give you valuable application and
analysis marks and count towards a “supported
judgement” for level 4 answers
Answer question 1
Create a mindmap from the answer to see
how it is constructed
• http://popplet.com/app/#/demo
Revision Video
 Glossary
• Productivity; the rate at which goods or services are
produced
• Shock; an event which causes a change within an economy
which occurs outside of it. Unpredictable and may affect
supply.
• Automation; method of operating or controlling processes by
automatic means using devices. Reduces need for human
interaction.
• Mechanisation; method of operating or controlling processes
using machinery
• Indirect tax; taxes levied on products or services before they
reach the consumer e.g. VAT and excise
• Government subsidy; a grant or gift of money from the
government to encourage supply of certain goods e.g. milk