2281 · 2.4
Supply — FAQ
Frequently asked questions for 2281 Supply. Direct answers first, then deeper explanation — then practise with marking.
Why does the supply curve slope upward?
Because a higher price makes producing extra units profitable: it covers the rising cost of producing more and attracts new producers. At a low price only the lowest-cost output is worth supplying.
Does a rise in demand shift the supply curve?
No. A rise in demand raises the price, and producers respond by moving along the existing supply curve — an extension of supply. Only a change in a condition of supply shifts the curve.
How does a subsidy differ from a tax in its effect on supply?
A subsidy lowers producers' costs and shifts supply to the right, lowering price and raising quantity. An indirect tax raises costs and shifts supply to the left, raising price and lowering quantity.