1.2.4 Supply — Practice Questions

Seven original multiple-choice questions on supply, written to the style and difficulty of Edexcel Paper 1 Section A.

7 questions Edexcel A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 1.2.4 Supply revision notes.

1. 1. The supply curve slopes upwards because a higher price

   Definition in context

   Select one answer

   A Increases potential profit, so firms produce more.

   B Lowers a firm's costs of production for each unit.

   C Raises the number of consumers active in the market.

   D Reduces the quantity that consumers demand.
   Show model answer

   Answer: A (Increases potential profit, so firms produce more.). The law of supply is a statement about incentives. At a higher price, each unit sold contributes more towards covering costs and generating profit, so producing more becomes worthwhile.
   It also draws in output that was previously not worth making: marginal producers whose costs were too high at the old price can now cover them. Both effects push quantity supplied up as price rises, which gives the curve its positive slope.

   Why the other options are wrong

   • B — Costs are determined by wages, raw materials and technology, not by the selling price. A higher price widens the margin between price and cost without changing cost.
   • C — Supply describes producers' behaviour. How many consumers there are is a condition of demand.
   • D — Quantity demanded does fall as price rises, but that is the demand curve. It explains nothing about why producers offer more.

2. 2. The world price of copper rises, with nothing else changing. In the market for copper this causes

   Applied reasoning

   Select one answer

   A A contraction in quantity supplied.

   B An extension in quantity supplied.

   C A leftward shift of the supply curve.

   D A rightward shift of the supply curve.
   Show model answer

   Answer: B (An extension in quantity supplied.). A change in the price of the good itself always produces a movement along the supply curve, never a shift of it.
   Price has risen, so quantity supplied rises: a movement up the curve, which is called an extension. Mines run extra shifts, marginal seams become worth working, and stockpiles are released — all responses to the price, all captured by the existing curve.

   Why the other options are wrong

   • A — A contraction is a movement down the curve, caused by a price fall. Price has risen here.
   • C — Shifts come from non-price conditions of supply: costs, taxes, subsidies, technology, the number of firms, external shocks. Copper's own price is none of these.
   • D — Same objection. The curve has not moved; the market has moved along it.

3. 3. Wages in the construction industry rise sharply. In the market for new houses the most likely effect is

   Applied reasoning

   Select one answer

   A A contraction in quantity supplied.

   B An extension in quantity supplied.

   C A leftward shift of the supply curve.

   D A rightward shift of the supply curve.
   Show model answer

   Answer: C (A leftward shift of the supply curve.). Wages are a cost of production. Higher costs make building less profitable at every possible house price, so fewer houses are supplied at each of them.
   That is a shift of the whole supply curve to the left. The check is the same one as always: the price of houses has not changed, so nothing has moved the market along its existing curve. A change in costs is a condition of supply.

   Why the other options are wrong

   • A — A contraction needs the price of houses to fall, and it has not. What has changed is the cost of building them.
   • B — Same objection, and in any case higher costs would not encourage more output.
   • D — A rightward shift means more supplied at every price, which is what lower costs would produce.

4. 4. Table 1 lists four changes affecting the market for bread.
   Using Table 1, the only change that shifts the supply curve for bread to the right is

   Data interpretation

   Table 1: Four changes affecting the market for bread

   	Change
   Change 1	The government introduces a subsidy for bakeries
   Change 2	The price of wheat rises
   Change 3	A new indirect tax is placed on bread
   Change 4	Several bakeries close down

   Select one answer

   A Change 1.

   B Change 2.

   C Change 3.

   D Change 4.
   Show model answer

   Answer: A (Change 1.). A rightward shift means more supplied at every price, and that requires something that lowers costs or raises capacity.
   Change 1 is a subsidy: a government payment to producers that reduces their costs directly, making each loaf more profitable and raising the quantity supplied at every price. The other three all push the curve the other way.

   Why the other options are wrong

   • B — Wheat is a raw material, so a higher wheat price raises costs. Supply shifts left.
   • C — An indirect tax is treated exactly like a cost increase. Supply shifts left, by the amount of the tax.
   • D — Fewer bakeries means less total market supply at every price, so the curve shifts left.

5. 5. A specific tax of £0.30 per litre is placed on a soft drink. On the supply and demand diagram, the vertical distance between the old and the new supply curves represents

   Definition in context

   Select one answer

   A The fall in the quantity traded.

   B The rise in the price paid by consumers.

   C The tax per unit.

   D The total revenue raised by the tax.
   Show model answer

   Answer: C (The tax per unit.). A specific tax adds a fixed amount per unit to the cost of supplying the good, so the supply curve shifts up by exactly that amount at every quantity. The vertical gap between the two curves is therefore the tax itself, £0.30.
   This is worth fixing in your mind, because the other quantities on the diagram are all measured differently: the price changes are shorter than the gap, and the revenue is an area rather than a distance.

   Why the other options are wrong

   • A — Quantity is measured along the horizontal axis. The vertical gap between two curves cannot represent it.
   • B — Consumers bear only part of the tax, so the price they pay rises by less than £0.30. The rest comes out of what producers keep. That split is the incidence question.
   • D — Total revenue is the tax per unit multiplied by the quantity traded, which is an area on the diagram rather than a distance.

6. 6. Table 1 shows how much a group of candle makers would supply each week at four prices, in January and again in June.
   Using Table 1, the most likely cause of the difference between the two months is

   Data interpretation

   Table 1: Weekly supply of hand-made candles, units

   Price	January	June
   £4	200	260
   £5	300	360
   £6	400	460
   £7	500	560

   Select one answer

   A A fall in candle makers' wages.

   B A fall in the price of candles.

   C A rise in an indirect tax on candles.

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

   Answer: A (A fall in candle makers' wages.). Compare the two months row by row: at £4 supply rises from 200 to 260, at £5 from 300 to 360, and so on. Quantity supplied is 60 units higher at every price.
   A change that alters the quantity supplied at every price is a shift of the whole curve, and a rightward shift needs something that lowers costs. Lower wages do exactly that: each candle becomes cheaper to make, so more is worth supplying at any given price.

   Why the other options are wrong

   • B — A price change moves the market along a single supply curve. It cannot produce a different quantity at every price, which is what the table shows.
   • C — A tax raises costs and shifts supply left, so quantities would fall at every price rather than rise.
   • D — The same objection as B. The price column is identical in both months — it is the quantities beside each price that have moved.

7. 7. The number of firms in a market doubles while the price of the good is unchanged. The market supply curve

   Applied reasoning

   Select one answer

   A Becomes vertical, because output is now fixed.

   B Is unchanged, because the price has not moved.

   C Shifts left, because competition lowers profits.

   D Shifts right, as more firms supply at each price.
   Show model answer

   Answer: D (Shifts right, as more firms supply at each price.). Market supply is the sum of what every firm in the industry would supply at each price. Double the firms and that sum rises at every price, so the whole curve shifts right.
   The trap is the phrase 'the price is unchanged'. A constant price rules out a movement along the curve, but says nothing about whether the curve itself moves. The number of firms is a condition of supply, so it shifts the curve — and that shift is exactly what will then change the equilibrium price.

   Why the other options are wrong

   • A — A vertical supply curve means quantity cannot respond to price at all. More firms make the market more able to respond, not less.
   • B — An unchanged price rules out a movement along the curve. It does not rule out the curve moving, and a change in the number of firms does move it.
   • C — Competition may well reduce profit per firm, but that is a consequence of the extra supply, not a reason for total supply to fall. More sellers means more offered at every price.