3.3 The Determinants of the Supply of Goods and Services

Why do higher prices imply higher profits and incentivise production expansion?

Higher prices can lead to higher revenues for firms, increasing potential profits

What causes shifts in the supply curve?

Result from factors like - 

• changes in production costs

• technological advancements

• taxes and subsidies

• number of sellers in a market

Under perfect competition, why is the supply curve the marginal cost curve?

In perfect competition, firms are price takers and produce where price equals marginal cost. Therefore, the supply curve reflects the marginal cost of production

What does a supply curve represent?

A supply curve shows the relationship between the price of a good or service and the quantity supplied by producers