Supply — practice questions

Step 1 — Tax on sugary drinks (a): an indirect tax raises producers' costs, so supply shifts left (S₁ → S₂). Equilibrium price rises and quantity falls.

Step 2 — Cheaper solar panels (b): better technology lowers the cost of each unit, so supply shifts right. Equilibrium price falls and quantity rises.

Step 3 — Drought (c): less rice is available at every price, so supply shifts left. Equilibrium price rises and quantity falls.

Step 4 — Shift versus movement: in each case a condition of supply changed, so the supply curve itself moved. The demand curve did not move — the market moves along the demand curve to the new equilibrium.

Exam tip: a change in the product's own price causes a movement along the supply curve (an extension or contraction), never a shift.

Step 1 — Equilibrium (a): 200 − 10P = 50 + 5P → 150 = 15P → P = $10. Quantity = 200 − 10(10) = 100 kg.

Step 2 — After the subsidy (b): 200 − 10P = 80 + 5P → 120 = 15P → P = $8. Quantity = 200 − 80 = 120 kg.

Step 3 — Why a shift (c): the subsidy lowers growers' costs, so at every price they are willing to supply 30 kg more (the constant rose from 50 to 80). That is a change in a condition of supply — a rightward shift. A movement along the curve would need a change in the price of coffee itself with no change in the equation.

Step 4 — Interpret: the subsidy lowers the market price from $10 to $8 and raises the quantity traded from 100 kg to 120 kg; consumers gain from lower prices and growers gain from selling more.