(a) What is a supply schedule? [2 marks] (b) Using an example, show how a market supply schedule of a product is obtained from individual supply schedules. ...
Question 1 Report
(a) What is a supply schedule? [2 marks]
(b) Using an example, show how a market supply schedule of a product is obtained from individual supply schedules. [12 marks]
(c) State three examples of exceptional demand. [6 marks]
Answer Details
(a) A supply schedule is a table showing the different quantities of a commodity that producers are willing and able to supply at various prices over a given period.
(b) Obtaining a market supply schedule from individual schedules. The market supply schedule is found by horizontal summation: at each price, add together the quantities that all the individual producers are willing to supply. Suppose there are two producers, A and B:
| Price ($) | Supply by A (units) | Supply by B (units) | Market supply (units) |
|---|---|---|---|
| 1 | 10 | 15 | 25 |
| 2 | 20 | 25 | 45 |
| 3 | 30 | 35 | 65 |
At each price the market quantity is simply the sum of A's and B's quantities (for example at $2, \( 20 + 25 = 45 \) units). Extending this addition to every producer in the market gives the whole market supply schedule.
(c) Three examples of exceptional (abnormal) demand, where more is bought as price rises or less as price falls, contrary to the ordinary law of demand:
- Giffen goods (basic inferior staples), for which a rise in price can raise quantity demanded.
- Goods of ostentation or prestige (Veblen goods), bought precisely because they are expensive.
- Goods bought under the expectation of future price changes, where a rising price today makes buyers rush to buy more, fearing further rises.
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