1.3.3 Determinants of Supply — Practice Questions

Six original multiple-choice questions on the determinants of supply, written to the style and difficulty of AQA Paper 3 Section A. Every question carries a full worked model answer.

6 questions AQA A-Level Multiple choice Model answers included

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1. 1. The market price of a good rises and firms increase the quantity they supply. On a supply diagram this is shown as

   Definition in context

   Select one answer

   A A movement along the supply curve.

   B A shift of the demand curve to the right.

   C A shift of the supply curve to the left.

   D A shift of the supply curve to the right.
   Show model answer

   Answer: A (A movement along the supply curve.). Price is one of the two axes the supply curve is drawn against, so a change in the good's own price is already built into the curve. Firms simply move to a different point on it — an extension of supply. The curve slopes upwards because a higher price makes it worth covering the higher marginal costs of extra output.

   Why the other options are wrong

   • B — A demand shift may well be what pushed the price up in the first place, but the supply-side response to that higher price is still a movement along the supply curve.
   • C — A leftward shift means less is supplied at every price, which requires a change in a condition of supply such as higher input costs.
   • D — A rightward shift also needs a condition of supply to change. Here only the price has moved, so the curve stays put.

2. 2. A sharp rise in the wages paid to workers in an industry will, all other things being equal,

   Applied reasoning

   Select one answer

   A Cause a movement up the supply curve of the industry.

   B Shift the supply curve of the industry to the left.

   C Shift the supply curve of the industry to the right.

   D Shift the demand curve for the industry's output to the left.
   Show model answer

   Answer: B (Shift the supply curve of the industry to the left.). Wages are a cost of production, and costs are one of the conditions of supply. Higher wages make every unit dearer to produce, so at any given price firms are willing to supply less than before. The whole curve moves left — equivalently, upwards, since firms now need a higher price to supply any given quantity.

   Why the other options are wrong

   • A — A movement along the curve requires the good's own price to change. Here it is a cost that has changed, which shifts the curve itself.
   • C — A rightward shift means more supplied at every price, which is what happens when costs fall. Higher wages do the opposite.
   • D — Demand comes from buyers of the output and is unaffected by what the industry pays its workers. There may be a second-round effect on incomes across the economy, but the direct effect is on supply.

3. 3. A government pays wheat farmers a subsidy of £40 for every tonne produced. All other things being equal, this will

   Applied reasoning

   Select one answer

   A Cause a movement along the supply curve of wheat.

   B Shift the demand curve for wheat to the right.

   C Shift the supply curve of wheat to the left.

   D Shift the supply curve of wheat to the right.
   Show model answer

   Answer: D (Shift the supply curve of wheat to the right.). A subsidy is a payment to producers, so it lowers the effective cost of each tonne. Farmers are willing to supply more at every price, which shifts the supply curve right — or, read vertically, down by £40, because they will now accept £40 less from buyers for any given quantity. The usual consequence is a lower market price and a higher quantity traded.

   Why the other options are wrong

   • A — A movement along the curve is caused by a change in the price of wheat itself. The subsidy changes the cost of producing it, which is a condition of supply.
   • B — The subsidy is paid to producers, not to consumers. Buyers' incomes, tastes and alternatives are unchanged, so demand does not shift — though the quantity demanded will rise as the price falls, which is a movement along the demand curve.
   • C — A leftward shift would follow from a tax on production, which raises costs. A subsidy works in the opposite direction.

4. 4. A firm installs new machinery that allows it to produce the same output using fewer workers. All other things being equal, this will

   Applied reasoning

   Select one answer

   A Increase supply at every price.

   B Increase the quantity supplied only if the market price rises.

   C Reduce supply at every price, because the machinery is expensive to buy.

   D Reduce the demand for the good, because fewer workers earn wages.
   Show model answer

   Answer: A (Increase supply at every price.). Improved technology raises productivity, so each unit costs less to produce. Lower costs mean the firm is willing to supply more at any given price, which is an increase in supply and a rightward shift of the curve. Technology is one of the standard conditions of supply for exactly this reason.

   Why the other options are wrong

   • B — This describes a movement along the curve, which is the response to a price change. The stem describes a change in production costs, and that shifts the curve whether or not the price moves.
   • C — The purchase price of the machinery is a fixed cost incurred once. What determines how much the firm supplies at each price is its marginal cost, and that has fallen.
   • D — This is a second-round macroeconomic effect and far too small to matter for one firm's market. The direct effect of a productivity improvement is on the supply side.

5. 5. Table 1 shows the quantity of a good supplied at three prices, before and after a change in market conditions.
   Using Table 1, the change between the two columns is best explained by

   Data interpretation

   Table 1: Quantity supplied before and after a change in conditions (units per week)

   Price	Quantity supplied before	Quantity supplied after
   £4	200	260
   £6	300	360
   £8	400	460

   Select one answer

   A A fall in the costs of production.

   B A fall in the price of the good.

   C A rise in the costs of production.

   D A rise in the price of the good.
   Show model answer

   Answer: A (A fall in the costs of production.). Compare the two columns at the same price. At £4, supply rises from 200 to 260; at £6, from 300 to 360; at £8, from 400 to 460. Firms are willing to supply 60 more units at every price, so the supply curve has shifted right. An increase in supply of this kind is caused by a condition of supply changing, and lower production costs are the standard explanation.

   Why the other options are wrong

   • B — A price change cannot explain the difference between the columns, because the columns are compared at identical prices. A price fall would move firms down a single column, not create a second one.
   • C — Higher costs reduce supply at every price, which would show up as smaller figures in the second column rather than larger ones.
   • D — Again a movement along the curve rather than a shift. Reading down either column already shows what a higher price does: quantity supplied rises from 200 to 400 within the first column alone.

6. 6. A government imposes a specific tax of £2 per unit on a good. All other things being equal, on a supply and demand diagram this is shown as

   Applied reasoning

   Select one answer

   A A downward shift of the supply curve by £2 at every quantity.

   B A leftward shift of the demand curve by £2 at every quantity.

   C An upward shift of the supply curve by £2 at every quantity.

   D A movement up the existing supply curve equal to £2.
   Show model answer

   Answer: C (An upward shift of the supply curve by £2 at every quantity.). A specific tax adds a fixed amount to the cost of every unit, so producers now need £2 more than before to supply any given quantity. Reading the supply curve vertically as the price required to bring forth each quantity, the whole curve moves up by exactly £2 — which is the same thing as a leftward shift.
   Worth noting: the market price does not normally rise by the full £2. How the burden splits between consumers and producers depends on the relative elasticities of demand and supply.

   Why the other options are wrong

   • A — A downward shift by a fixed amount per unit is a subsidy, which lowers the price producers need. A tax works in the opposite direction.
   • B — The tax is levied on production, so it acts on the supply side. Consumers' willingness to pay at each price is unchanged; what changes is the quantity they end up buying, which is a movement along the demand curve.
   • D — A movement along the supply curve is a response to the good's own price changing. The tax changes the cost of production, which relocates the curve itself.