Unit #2.2 & 2.3 Economics Review

Which government policy increases supply?

• Tariff

• Excise Tax

• Subsidy

• Regulation

Answer explanation

A subsidy is a government policy that provides financial support to producers, lowering their costs and encouraging them to increase supply. In contrast, tariffs and excise taxes typically raise costs, while regulations can restrict supply.

What are inputs of production?

• Consumer Preferences

• Factors of production such as land, labor, and capital

• Taxes and Subsidies

• Government Regulations

Answer explanation

Inputs of production refer to the resources used to create goods and services. The correct choice, 'Factors of production such as land, labor, and capital', encompasses the essential inputs needed for production.

A car manufacturer invests in new robots that cut production costs in half. Explain the effect on the supply curve.

• Curve shifts left because costs are lower

• Curve shifts right because costs are lower

• Curve does not change, only demand shifts

• Curve becomes vertical

Answer explanation

When a car manufacturer invests in robots that halve production costs, it becomes cheaper to produce cars. This increase in efficiency shifts the supply curve to the right, indicating a higher quantity supplied at each price level.

What is the goal of all producers within a market?

• to lower prices

• to balance supply and demand

• to make a profit

• to increase demand

Answer explanation

The primary goal of all producers in a market is to make a profit. While they may also aim to balance supply and demand or influence prices, profit is the fundamental incentive driving their production decisions.

Supply deals with which group?

• Consumers

• Government regulators

• Producers

• Households

Answer explanation

Supply refers to the amount of goods or services that producers are willing to offer at various prices. Therefore, the correct group associated with supply is producers.

Which factor would not cause a shift in the supply curve?

• Technology improvements

• Number of suppliers

• Change in price of the good itself

• Government subsidies

Answer explanation

A change in the price of the good itself does not shift the supply curve; it results in a movement along the curve. In contrast, factors like technology improvements, number of suppliers, and government subsidies do shift the supply curve.

What does the Law of Supply state?

• As price increases, quantity supplied decreases

• As price increases, quantity supplied increases

• As price decreases, supply increases

• As price increases, demand decreases

Answer explanation

The Law of Supply states that as the price of a good increases, producers are willing to supply more of it. Therefore, the correct answer is: As price increases, quantity supplied increases.

A severe drought reduces the amount of wheat available. This will cause the supply curve for wheat to:

• Shift Right

• Shift Left

• Stay the same

• Move along the curve

Answer explanation

A severe drought decreases wheat availability, leading to a reduction in supply. This causes the supply curve for wheat to shift left, indicating less wheat is available at every price level.

If the price of raw materials increases, what happens to supply?

• Supply Increases

• Supply Decreases

• Supply stays constant

• Supply shifts right

Answer explanation

When the price of raw materials increases, production costs rise, leading to a decrease in supply. Producers may supply less at the same price, hence supply decreases.

Market equilibrium occurs when:

• Demand is greater than supply

• Supply is greater than demand

• Quantity demanded equals quantity supplied

• Government sets a price floor

Answer explanation

Market equilibrium occurs when quantity demanded equals quantity supplied, meaning the market is balanced with no excess supply or demand. This is the correct condition for equilibrium.