Question

Match the following:

Group A	Group B
1) Perfectly Elastic Supply	a. Vertical supply curve
2) Stock	b. Horizontal supply curve
3) Increase in supply	c. Potential supply
4) Perfectly Inelastic supply	d. Rightward shift in supply curve
5) $\frac{TC}{TQ}$	e. Leftward shift in
	f. Average cost

Answer 1

Group A	Group B
i. Perfectly Elastic Supply	b. Horizontal supply curve
ii. Stock	c. Potential supply
iii. Increase in supply	d. Rightward shift in supply curve
iv. Perfectly Inelastic supply	a. Vertical supply curve
v. $\frac{TC}{TQ}$	f. Average cost

Explanations:

i. Perfectly elastic supply implies a situation where the quantity supplied is fully (or highly) responsive to the change in the price of the good. Accordingly, a very small change in the price leads to an infinite change in the quantity supplied. A perfectly elastic supply curve originates from the vertical intercept of the price-axis and remains horizontally parallel to the quantity axis.



ii. Stock is the amount of goods that are available with the seller for sale at a given point of time. A higher stock implies higher sale can be done and vice- versa. Thus, we can say that stock determines the potential supply.

iii. Increase in supply implies that a larger quantity is supplied at the same price. This increase in supply can be because of favourable changes in factors such as decrease in the factor prices, advancement in technology, favourable government policies etc. An increase in supply is represented by a parallel rightward shift of the supply curve.



iv. When the quantity supplied is totally unresponsive to the change in the price of a good, the supply of the good is said to be perfectly inelastic. In such a situation, the supply curve originates from the horizontal intercept of the quantity-axis and remains vertically parallel to the price axis representing that the supply remains fixed whatever be the price.

The figure given below shows a perfectly inelastic supply curve.



v. Average cost is defined as the per unit cost of producing output. It is derived by dividing total cost by quantity of the output produced. That is,

Average cost = $\frac{TC}{TQ}$