Answer:

A supply curve is said to be 'perfectly elastic' at a price of £50 per unit if, at that price, producers are willing and able to supply an unlimited quantity of the good. This means that even a tiny increase in the price will result in a very large increase in the quantity supplied. In other words, the supply curve is a horizontal line at that price.

Implications for Market Equilibrium:

• Price Stability: A perfectly elastic supply ensures that the quantity supplied is constant regardless of the price. This means that the market equilibrium price will be determined solely by the demand for the product.
• Consumer Benefit: Because the supply is perfectly elastic, the price will be driven down to the level where demand equals the quantity supplied. This benefits consumers as they can purchase the good at a lower price.
• Market Efficiency: Perfectly elastic supply leads to a highly efficient market where resources are allocated optimally. The price reflects the true value of the good to consumers, and producers are incentivized to supply as much as possible at that price.

Answer:

Answer: A government subsidy is a payment made by the government to producers for each unit of a good they produce. A subsidy will encourage producers to supply more of the good, shifting the supply curve to the right. This will lead to a lower equilibrium price and a higher equilibrium quantity.

Diagram:

The diagram shows the original supply curve. A subsidy will cause the supply curve to shift right (to S2). The new equilibrium point (E2) will be at a lower price (P2) and a higher quantity (Q2) than the original equilibrium point (E1). The difference between P1 and P2 represents the amount of the subsidy per apple.

Explanation: The subsidy effectively reduces the cost of production for the apple producers. This makes it profitable for them to supply more apples at any given price. The rightward shift in the supply curve reflects this increased willingness to supply. As a result, the market moves to a new equilibrium where the price is lower and the quantity is higher.

Answer:

The diagram illustrates a supply curve, which shows the relationship between the price of a good and the quantity supplied. A change in the cost of production will lead to a movement along the supply curve, as demand is assumed to remain constant.

Increase in the cost of production: If the cost of production increases (e.g., due to higher wages or increased raw material prices), producers will be less willing to supply the same quantity at the same price. This will cause the supply curve to shift left. This shift results in a higher equilibrium price and a lower equilibrium quantity. The diagram shows a movement left along the existing supply curve, leading to a higher price (P2) and a lower quantity supplied (Q2). This is because it is now more expensive for producers to supply the good, so they will only supply a smaller quantity at any given price.

Decrease in the cost of production: Conversely, if the cost of production decreases, producers will be more willing to supply the same quantity at the same price. This will cause the supply curve to shift right. This shift results in a lower equilibrium price and a higher equilibrium quantity. The diagram shows a movement right along the existing supply curve, leading to a lower price (P1) and a higher quantity supplied (Q1). This is because it is now cheaper for producers to supply the good, so they will supply a larger quantity at any given price.

Diagram Explanation: The diagram shows the supply curve. A shift to the left represents an increase in cost of production, and a shift to the right represents a decrease in cost of production. The movement along the curve reflects the impact of the change in cost on the quantity supplied at each price level.