Cambridge International as and a level Economics Ebook

SELF-ASSESSMENT TASK 
2.21
Go through each of the following factors: wage rates; 
worker productivity; raw material prices; energy 
costs; maintenance costs; transport costs and the 
state of technology; and work out what sort of change 
in that factor will cause:
a 
an increase in supply
b 
a decrease in supply.
Size and nature of the industry
If it is clear that there is substantial profi t to be made 
by selling a product, then businesses inside and outside 
the industry are likely to react. Th
ose currently in the 
industry may invest in capital equipment in an attempt 
to grow bigger and take advantage of the situation. 
Businesses outside the industry may try to enter this 
market and new local competitors may also emerge. If 
the size of the industry increases, because there are more 
fi rms or bigger fi rms, then it is likely that the supply of 
the industry will increase. Equally, if fi rms in the industry 
start to compete more intensively on price, it is likely 
that the supply curve will shift to the right as the eff ects 
of this price competition start to aff ect the price that all 
companies are willing to accept for their products. Of 
course if a fi erce price war breaks out, then consumers, at 
least temporarily, may enjoy very much lower prices for 
any given level of supply.
Government policy
Governments infl uence company decisions in many 
ways. Legislation designed to protect consumers or 
workers may impose additional costs on companies 
and this may aff ect the supply curve. Governments 
may also impose a 
specifi c tax
such as excise duties on 
the output of companies or an 
ad valorem
 tax
such as 
a sales tax or value added tax on particular goods and 
services. Th
e impact of tax is like a cost increase because