Unit 1 Micro: Exercise on Market Supply

This is an exercise to test understanding of the conditions of supply in markets. You can download the resource by clicking below.

Supply is the quantity of a product that a producer is willing and able to supply / sell onto a market at a given price in a given time period

The law of supply - a greater quantity of a good or service will be supplied at a higher price. In part this is due to the profit incentive. For example, if you are a business extracting crude oil, you stand to make a higher profit for every barrel supplied if the market price is $100 compared to a price of $60.

A change in market price of the product itself will cause a movement along the market supply curve

But changes in other conditions of supply (i.e. non-price factors) will bring about a shift in the supply curve. Most of these supply conditions relate to the costs of production facing a business. But supply can also be affected by changes in the prices of other goods and services, price expectations, shifts in technology, supply-shocks that disrupt normal supply and also the impact of government regulations on producers.

In the exercise below identify whether the change in the market will bring about either a movement along the supply curve or a shift in the supply curve at each price. And then decide whether you expect to see a contraction/expansion of supply (for a movement along) or a fall/increase in supply (for a shift).

Resource download
Market_Supply_Exercise.pdf