Explain one factor that influences the supply of a product.
CAMBRIDGE
A level and AS level
Year Examined
May/June 2023
Topic
Economics
👑Complete Model Essay
The Impact of Production Costs on Supply
The supply of a product refers to the quantity of that product that producers are willing and able to offer for sale at various prices in a given period. Numerous factors influence supply, with one crucial factor being the cost of production.
Understanding Production Costs
Production costs encompass all expenses incurred by a firm in producing and supplying a good or service to the market. These costs can be categorized as fixed costs, which remain constant regardless of output level (e.g., rent, salaries), and variable costs, which fluctuate directly with production volume (e.g., raw materials, labor wages).
The Inverse Relationship
The relationship between production costs and supply is generally inverse. As production costs rise, supplying a product becomes less profitable, prompting producers to decrease supply. Conversely, if production costs fall, businesses are incentivized to increase their supply as profit margins expand.
Illustrative Examples
Consider the agricultural sector. If the cost of fertilizers and pesticides increases, farmers may reduce their crop production due to the diminished profitability. Conversely, if a technological advancement allows for more efficient irrigation, lowering water costs, farmers may respond by increasing their output.
Similarly, in the manufacturing industry, an increase in the price of steel, a crucial input for automobile production, would likely lead to a decrease in the supply of cars as manufacturers grapple with higher production costs. Conversely, a government subsidy on renewable energy could reduce energy expenses for a solar panel manufacturer, potentially boosting their production and supply.
Beyond the Basics: Complexities and Considerations
While the inverse relationship between production costs and supply generally holds true, several nuances warrant consideration:
- Time Horizon: In the short run, firms might absorb some cost increases rather than immediately cutting supply, especially if they anticipate future cost reductions or price increases.
- Market Structure: The impact of cost changes on supply can differ based on the level of competition within the market. For instance, firms in highly competitive markets might have limited flexibility in adjusting supply due to price pressures.
- Government Intervention: Policies such as taxes and subsidies can influence production costs and consequently impact supply.
Conclusion
Production cost stands as a pivotal determinant of supply. As businesses strive to maximize profits, their production decisions are intrinsically linked to the cost of producing and delivering goods and services to the market. Understanding this relationship is crucial for comprehending market dynamics and predicting supply fluctuations in response to changing economic conditions.
Explain one factor that influences the supply of a product.
Note: Business Studies Pack Required
Score Big with Perfectly Structured Business Studies Essays!
Prepare effortlessly for your A/AS/O-Level exams with our comprehensive...
Business Studies Pack.
✅ Model Essays for past papers questions
✅Covers Cambridge Exam Boards
✅ Suitable for A Level
✅A Library of over 400 Essays
✅ Download all Essays in PDF format
...and much more!
Free Essay Plan 🍃
A-Level Business Studies Essay Guide: One Factor Influencing Supply
This guide provides a comprehensive approach to writing a successful A-Level Business Studies essay focusing on one factor influencing the supply of a product. You will learn about relevant concepts, how to apply them, and tips for crafting a high-scoring response.
Understanding the Concept of Supply
Supply refers to the amount of a good or service that producers are willing and able to offer for sale at a given price during a specific period. It's essential to remember that supply is not just the quantity of goods available, but rather the quantity producers are willing to sell at a particular price.
Factors Influencing Supply
Several factors can affect the supply of a product. The essay question asks you to choose **one** of these factors and analyze its impact on supply. Here are some common factors:
1. Price
The price of a product is a fundamental factor influencing supply. As the price of a product rises, producers are incentivized to supply more. This is because they can earn higher profits at higher prices. Conversely, if the price falls, producers may reduce their supply as they become less profitable.
2. Cost of Production
Changes in the cost of production, such as raw material prices, labor costs, or rent, can significantly impact supply. If the cost of production increases, suppliers may reduce their output to maintain profitability. Conversely, if costs decrease, they may increase supply to take advantage of lower production expenses.
3. Natural Conditions
Natural conditions, including weather patterns, seasons, and natural disasters, can directly affect supply. For example, a drought could lead to reduced agricultural output, impacting the supply of certain food products. Similarly, a hurricane could disrupt production and distribution chains, impacting the supply of various goods.
4. Transport
Transportation costs and disruptions can also influence supply. A shortage of truck drivers or a rise in fuel prices can increase transportation costs, leading to reduced supply. Similarly, road closures or other transportation disruptions could temporarily interrupt the flow of goods, impacting supply.
5. Government Action
Government policies can also impact supply. For example, taxes on products may discourage production, leading to reduced supply. Conversely, subsidies can incentivize production, leading to increased supply.
6. New Technology
Technological advancements can improve efficiency and reduce production costs, leading to increased supply. For example, automation in manufacturing can lead to higher output at lower costs, impacting supply positively.
7. International Incidents
International events, such as wars or trade disputes, can disrupt supply chains, impacting the supply of goods. For example, a war could disrupt the production of certain goods or lead to sanctions that restrict trade, affecting supply.
8. Level of Demand
While demand is typically considered a separate factor, it can indirectly affect supply. If demand for a product increases, businesses may attempt to increase production to meet the higher demand, leading to increased supply. Conversely, if demand decreases, businesses may reduce production, leading to decreased supply.
Choosing Your Factor and Developing Your Argument
Once you have chosen a factor, you need to develop a clear and concise argument to support your analysis. This involves:
1. Defining the Chosen Factor
Begin your essay by clearly defining the chosen factor and explaining its relevance to the supply of a product. For example, if you're focusing on price, explain how price fluctuations influence producers' decisions regarding output.
2. Providing Examples
Use real-world examples to illustrate your point. This could include specific products, industries, or events where the chosen factor has impacted supply. For example, you could discuss how the rise in oil prices affected the supply of gasoline in a particular country.
3. Applying Economic Concepts
Demonstrate your understanding of economic concepts relevant to supply and demand. For example, you could discuss the concepts of supply and demand curves, elasticity, and market equilibrium.
4. Analyzing the Impact
Explain the positive and negative impacts of the chosen factor on supply. How does it lead to an increase or decrease in supply? What are the implications for consumers and producers?
5. Considering Other Factors
While you are focusing on one factor, acknowledge the influence of other factors. Explain how the chosen factor interacts with other factors to influence supply. For example, if you're focusing on the cost of production, acknowledge the role of price and demand in shaping the overall supply picture.
Writing Tips for A-Level Business Studies Essays
Here are some additional tips to help you write a strong essay:
1. Structure
Use a clear and logical structure. Begin with an introduction that introduces the topic, states your thesis statement, and outlines the key points you will discuss. Each subsequent paragraph should focus on a specific point, providing evidence and analysis. Conclude with a summary of your key arguments and a restatement of your thesis.
2. Clarity and Conciseness
Write in a clear and concise style. Use precise language and avoid jargon. Ensure your sentences are grammatically correct and easy to understand. Make your arguments clear and avoid unnecessary repetition.
3. Evidence and Analysis
Support your points with specific evidence, such as relevant statistics, case studies, or examples from published research. Analyze the evidence to explain how it supports your argument. Avoid simply stating facts without explaining their significance.
4. Critical Thinking
Demonstrate critical thinking by considering alternative perspectives and exploring the limitations of your argument. Acknowledge any potential biases or assumptions that may influence your analysis.
5. Proofreading
Proofread your essay carefully to ensure it is free of errors in grammar, spelling, and punctuation. A well-written, error-free essay makes a good impression on the examiner.
Extracts from Mark Schemes
Explain one factor that influences the supply of a product.
AO1 Knowledge and understanding
- Price
- Cost of production
- Natural conditions
- Transport
- Government action
- New technology
- International incidents
- Level of demand
One factor that influences the supply of a product is the price the product commands in the market (1 mark ´ 1) 3 9609/12 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2023 © UCLES 2023 Page 10 of 32
Question Answer Marks 1(b)
AO2 Application
The influencing factors affecting the supply of a product are considered to include the following:
- Price variations – supply likely to increase as product price rises and fall as product price falls.
- Speculative prices – anticipated future price rises may reduce current supplies.
- Cost of production – as costs rise supplies may reduce-as costs fall supplies may increase.
- Changes in natural conditions – Weather, seasons, holidays, disasters, droughts, monsoons may reduce supply.
- Transport – constraints, lack of lorry drivers may interrupt supplies.
- Government action – taxes on products may reduce supply – subsidies may increase supply.
- New technology – may lead to greater efficiency – lower costs and increased supply.
- Foreign Government actions/interventions affecting the supply chain – new trade restrictions.
- International incidents – wars that affect the supply chain.
- Level of demand – business will produce and supply more if the demand increases.
- Increased demand reduces stock availability – supply will decrease.
- Developed application of one factor – the price variations of a product – the supply is likely to increase as the price of the product rises in the market and falls as the price of the product falls in the market.