Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does the supply curve indicate?

1. The quantity of goods supplied at all prices

2. The quantity of a good supplied by producers at a given price

3. The total revenue generated from sales

4. The total cost incurred by producers

The correct answer is: The quantity of a good supplied by producers at a given price

The supply curve is a graphical representation that depicts the relationship between the price of a good and the quantity of that good that producers are willing and able to supply at that specific price. Therefore, it indicates the quantity of a good supplied by producers at a given price. When analyzing the supply curve, one can see how changes in price will affect the quantity supplied. Typically, as the price increases, the quantity supplied also increases, reflecting producers' willingness to supply more of a good when they can achieve a higher price for it. This direct relationship is fundamental to understanding market dynamics and producer behavior. The other options refer to broader concepts or specific metrics that do not accurately encapsulate the primary function of the supply curve itself. For instance, while the quantity of goods supplied at all prices captures a broader view, it does not focus on the specific relationship between price and quantity at a singular point on the curve. Total revenue generated from sales and total costs incurred by producers are both financial metrics that derive from the behaviors illustrated by the supply curve but do not define what the supply curve indicates.