Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is the effect of price on the short-run supply curve?

1. It has no effect on the supply curve

2. It determines the entire shape of the supply curve

3. It influences the quantity supplied along the supply curve

4. It only affects the marginal cost directly

The correct answer is: It influences the quantity supplied along the supply curve

The correct choice highlights that price influences the quantity supplied along the supply curve. In the short run, a higher price incentivizes producers to supply more of a good or service, as they are often more willing to increase production when they can charge a higher price. Conversely, a lower price may lead to a reduction in the quantity supplied, as it may not cover the costs of production or may not provide sufficient profit. In a short-run context, the supply curve typically reflects the relationship between the price of a good and the quantity that producers are willing and able to supply. While price does not change the overall shape of the supply curve, it does determine the specific quantity supplied at any given moment. Thus, this movement along the curve is a direct consequence of changes in price. Understanding this concept is crucial for analyzing how supply responds to market prices under short-run conditions, particularly in fields like economics and accounting, where supply and demand dynamics are fundamental.