Question

Variables typically included in a multivariate supply function (other than the price and quantity of the item the supply function represents) are prices of other goods that use similar input resources for production, expectations, the number of suppliers, techniques of production, taxes and subsidies, and prices of input resources, weather.  Please answer the following questions about the affect changes in other variables might have on the supply of the item.  These changes will either cause supply to increase (shift right) or decrease (shift left).  Use either word as applicable, for the short answer.

1. Suppose the market price of fuel oil increases (preparing for the winter demand), what will refiners do to the supply of gasoline (which uses the same input resources as fuel oil)?

2. A tariff is a form of trade restriction (that behaves much like a tax).  Suppose the United States imposes a high tariff on imported broccoli.  How might this change the supply of imported broccoli?

3. How will a decrease in the productivity of technology affect the supply of the item being considered, assuming no increase in the availability of manufacturing materials?

4. If the price of an input resource increases (and there are no cheaper substitutes for the resource) then producers of the item the resource is used to produce are likely to ____________________ the amount of the item produced

5. A subsidy is paid to vaccine producers in order to _______________ the supply of vaccine.

Answer 1

1) Market price of fuel oil increases, what will refiners do to the supply of gasoline (which uses the same input resources)?

Decrease.

When the market price of fuel oil increases, the refiners will shift all input resources (including the resources that are used to produce gasoline) towards the production of fuel oil to increase their profits, and this results in an increase in the supply of fuel oils.

2) United States imposes tariff on imported broccoli and its effect on the supply of imported broccoli will be?

Decrease.

A tariff artificially increases the final selling price of an imported product. Since the price of broccoli has increased, it will result in a decrease in demand for imported broccoli, and thus the supply of imported broccoli will decrease.

3) Decrease in productivity technology and assuming no increase in the availability of manufacturing materials, the supply of the item will

Decrease.

Decrease in the productivity technology increases the cost of manufacturing the item by requiring more input materials to produce the same quantity of items. This raises the final selling price, and will result in reduced demand and since there is no corresponding increase in the availability of the input materials required to produce the item, producers will have to decrease the supply of the item.

4) If the price of an input increases, and there are no cheaper substitutes, the producers of the item the resource is used to produce are likely to

Decrease.

An increase in the price of an input will increase the cost of producing the item, which would make the item more expensive for the consumers and demand for that item will drop. Therefore, the producers are likely to decrease the supply of the item to account for the reduction in demand.

5) Subsidy is paid to vaccine producers to Increase the supply of vaccine.

Governments provide subsidy to manufacturers to decrease their cost of producing a particular commodity, which increases the company's profits and thus incentivises them to increase the production and supply of that commodity.