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Question
1:
Bruce
is
the
owner
of
a
small
cereal
firm.
He
supplies
a
range
of
cereals
to
the
market.
Bruce’s
monthly
supply
of
Berry
Berry
Yummy
cereal
is
shown
in
the
graph
below.
Discuss
the
effect
on
Bruce’s
supply
of
Berry
Berry
Yummy
cereal
if
the
price
increases
from
$6
a
box
to
$7.00
a
box.
In
your
answer:
-
Describe
the
law
of
supply,
by
referring
to
the
graph
below..
-
fully
explain
the
reason
for
the
law
of
supply
in
relation
to
Bruce’s
cereals.
-
describe
the
relationship
between
Berry
Berry
Yummy
cereal
and
other
cereals
Bruce
provides
and
fully
explain
the
impact
of
the
price
change
on
the
supply
of
other
cereals
produced
by
Bruce.
Check
answer.
Law
of
Supply:
As
the
price
of
Bruce’s
Berry
Berry
Yummy
cereal
increases
from
$6
to
$7
per
box,
the
quantity
of
boxes
of
cereal
supplied
by
Bruce
increases
from
10
000
boxes
to
50
000
boxes
per
month.
Ceteris
paribus.
Explanation
of
the
reason
for
law
of
supply:
As
the
price
of
cereal
rises,
selling
Berry
berry
Yummy
cereal
becomes
more
profitable
for
Bruce
since
the
revenue
has
increased
and
he
is
better
able
to
cover
production
costs.
Since
Profit
=
Revenue
-
Production
costs
his
profit
will
be
larger..
Therefore,
Bruce
will
want
to
increase
the
quantity
(of
Berry
Berry
Yummy
Cereal)
supplied
in
order
to
maximise
profits.
Explanation
of
the
effect
of
the
increase
in
price
of
street
shoes
on
a
related
good:
A
related
good
is
one
that
can
be
made
with
similar
resources
or
inputs.
Berry
berry
Yummy
cereal
and
other
cereals
are
related
goods
because
they
use
similar
resources
such
as
wheat,
fruit,
machinery
and
workers.
With
Berry
berry
Yummy
Cereal
being
relatively
more
profitable
than
other
cereal,
Bruce
will
switch
his
resources
away
from
other
types
of
cereal
towards
berry
berry
Yummy
Cereal.
This
will
decrease
Bruce's
supply
of
other
types
of
cereal
/
decrease
the
quantity
of
other
types
of
cereal
Bruce
will
supply
at
each
price.
Next
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
Question
2
Using
the
diagram
below,
fully
explain
the
impact
of
good
growing
conditions
on
Zac’s
supply
of
cabbages.
Check
answer.
Good
growing
conditions
will
make
growing
cabbages
easier
and
Zac
will
need
to
use
less
resources
such
as
water,
spray
and
labour
to
grow
the
cabbages.
This
will
decrease
the
cost
of
production
for
growing
cabbages.
Since
profit
is
equal
to
revenue
-
the
cost
of
production,
a
decrease
in
the
cost
of
production
will
mean
that
profits
will
increase.
This
will
mean
that
Zac
will
be
more
willing
to
supply
more
cabbages
at
the
same
price.
This
will
cause
a
shift
of
the
supply
curve
from
S
to
S2
and
an
increase
in
the
supply
of
cabbages.
Next
Question.
Previous
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
Custom
Wooden
Play
sets
and
Custom
Wooden
Furniture
are
related
goods
.
They
are
goods
that
use
the
same
resources
/
inputs
in
production
such
as
labour,
wood
etc.
but
have
two
different
outputs.
A
decrease
in
the
price
of
custom
wooden
play
sets
from
$900
to
$800
will
cause
a
decrease
in
the
quantity
supplied
from
50
to
20.
This
is
because
with
a
decrease
in
price
Steve
does
not
get
as
much
revenue.
Since
Profit
equals
revenue
-
production
costs
Steve’s
profits
for
Custom
Wooden
Play
sets
will
decrease.
This
will
mean
that
more
resources
will
be
available
for
the
production
of
Custom
Wooden
furniture
and
so
the
supply
curve
will
shift
right
from
S
to
S2
as
Steve
will
increase
his
supply
of
Custom
Wooden
Furniture
as
it
becomes
comparatively
more
profitable.
Flow
effects
Steve
may
have
to
train
workers
becuase
the
making
of
Custom
Wooden
Furniture
may
require
different
skills.
Steve
may
have
to
buy
some
machinery
to
increase
production
of
custom
wooden
furniture.
Question
3
Using
the
diagram
below,
to
fully
explain
the
impact
of
a
decrease
in
price
of
Custom
Wooden
Toys
on
the
supply
of
Custom
Wooden
Furniture.
Explain
2
flow
on
effects.
Check
answer.
Next
Question.
Previous
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
A
minimum
wage
is
a
legal
factor
affecting
supply.
An
increase
in
the
minimum
wage
will
cause
an
increase
in
the
cost
of
labour
and
so
an
increase
in
the
costs
of
production
for
Sean
in
the
production
of
peaches.
Since
Profit
=
Revenue
-
Production
Costs
an
increase
in
the
costs
of
production
will
cause
a
decrease
in
profits
for
Sean
This
will
mean
that
Sean
will
be
less
willing
to
supply
Peaches
and
so
the
supply
curve
will
shift
left
from
S
to
S2
showing
a
decrease
in
supply.
Flow
on
effects:
Sean
may
decrease
the
number
of
workers
as
he
decreases
production
and
so
some
workers
may
be
made
redundant.
Sean
may
need
less
storage
space
for
peaches
and
reduce
the
size
or
number
of
storage
facilities.
Sean
may
invest
in
more
machinery
to
mechanize
the
production
of
Peaches
to
save
on
labour
costs.
Question
4
Using
the
diagram
below,
fully
explain
the
effect
of
an
increase
in
the
Minimum
wage
on
Sean’s
supply
of
Peaches.
Explain
two
flow
on
effects.
Check
answer.
Next
Question.
Previous
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
The
law
of
supply
states
that
as
the
price
of
Uplift
decreases
from
$8
to
$7.50
the
quantity
supplied
decreases
from
10
000
bottles
to
4
000
bottles
assuming
ceteris
paribus.
Ceteris
Paribus
means
that
all
other
factors
other
than
price
will
remain
unchanged
so
the
cost
of
things
like
labour,
resources,
rent
etc.
will
not
change.
As
the
price
decreases
from
$8
to
$7.50,
Scott
will
make
less
revenue.
Since
Profit
is
equal
to
Revenue
minus
the
cost
of
production
,
a
decrease
in
price
will
decrease
Scott’s
profit
and
so
he
will
be
less
willing
to
supply
as
much
and
so
his
quantity
supplied
will
decrease
from
10
000
bottles
to
4
000
bottles.
Question
5
Using
the
diagram
below,
explain
the
impact
of
a
decrease
in
price
of
Uplift
Drink
on
Scott’s
supply
of
Uplift.
In
your
answer
explain
the
law
of
supply,
the
meaning
of
ceteris
paribus
in
the
law
of
supply
and
a
reason
for
the
law
of
supply.
Check
answer.
Next
Question.
Previous
Question.
Investment
is
the
buy
of
capital
goods.
The
buying
of
new
machinery
will
help
increase
productivity
and
efficiency
.
An
increase
in
productivity
and
efficiency
will
reduce
the
cost
of
production
for
the
making
of
Cashmere
Cardigans.
Since
Profit
=
Revenue
-
the
Cost
of
Production
,
a
decrease
in
production
costs
will
increase
Amy’s
profits.
With
an
increase
in
profits
Amy
will
be
willing
to
supply
more
Cashmere
Cardigan’s
and
so
the
supply
curve
will
shift
right
from
S
to
S2
showing
an
increase
in
supply.
Flow
on
Effects:
Amy
may
have
to
hire
more
workers
to
help
increase
the
production
of
Cashmere
Cardigan’s.
Amy
may
need
more
storage
space
to
store
the
increased
production
of
Cashmere
Cardigan’s
before
she
is
able
to
ship
them.
Amy
may
need
to
pay
increased
interest
payments
due
to
borrowing
money
for
the
investment
in
new
machinery
she
has
made.
Question
6
Use
the
diagram
below
to
explain
the
effect
of
an
increase
in
investment
in
new
machinery
on
Amy’s
supply
of
Cashmere
Cardigan’s.
Explain
two
flow
on
effects
of
the
impact
of
the
increased
investment
in
new
machinery.
in
why
most
of
Annie's
income
is
spent
on
necessities.
In
your
answer,
you
should:
Explain
why
most
of
Annie's
income
is
spent
on
necessities.
In
your
answer,
you
should:
Explain
why
most
of
Annie's
income
is
spent
on
necessities.
In
your
answer,
you
should:
Check
answer.
Next
Question.
Previous
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.
A
tariff
is
a
trade
factor
affecting
supply.
A
tariff
is
a
tax
on
imports.
A
free
trade
agreement
with
South
Korea
that
reduces
tariffs
on
butter
will
mean
that
Marka
is
now
paying
less
indirect
tax
on
the
butter
he
sends
to
South
Korea.
The
reduction
in
tariffs
will
mean
that
Marka
will
gain
more
revenue
from
the
selling
of
butter
to
South
Korea.
Since
Profit
=
Revenue
-
Costs
of
production
,
an
increase
in
revenue
will
mean
that
Marka
is
making
more
profit.
This
means
at
the
same
price
Marka
is
now
willing
to
supply
more
butter
shifting
the
supply
curve
to
the
right
from
S
to
S2
increasing
supply.
Flow
on
effects:
Marka
may
have
to
employ
more
labour
to
help
increase
production.
Marka
may
need
to
invest
in
more
storage
facilities
such
as
refrigerators
to
store
the
increase
butter
production.
Marka
may
need
to
invest
in
more
machinery
to
help
increasing
butter
production.
Marka
may
need
to
increase
the
number
of
cows
and
farm
size
he
has
to
help
increase
production.
Question
7
Use
the
diagram
below
to
fully
explain
the
impact
of
a
free
trade
agreement
with
South
Korea
that
reduces
the
tariff
on
butter
on
Marka’s
supply
of
butter.
Explain
two
flow
on
effects.
Check
answer.
Previous
Question.
Click
to
enlarge
image.
Click
and
hold
to
reduce.