Factors Influencing the Supply Curve

D

Note that the total money supply in the economy determines the values plotted on the price-axis of a supply curve.

The supply curve in economics represents the relationship between the price of a good or service and the quantity of that good or service that producers are willing and able to supply to the market. It is important to understand the factors that determine the supply curve. Let's go through each of the options and determine which factors are relevant.

I. Supply curves of factor resources: This option refers to the supply curves of the factors of production, such as labor, capital, and raw materials. The availability and cost of these resources affect the supply of goods and services. When the cost of factor resources increases, producers may be less willing to supply goods and services at a given price, leading to a decrease in the supply curve. Conversely, if the cost of factor resources decreases, the supply curve may shift to the right, indicating an increase in the quantity supplied at a given price. Therefore, factor resources do impact the supply curve.

II. Total money supply flowing in the economy: The total money supply in an economy refers to the amount of money available for spending and investment. While changes in the money supply can influence various aspects of the economy, such as inflation and interest rates, they do not directly determine the supply curve. The supply curve is primarily influenced by the cost of production, not the money supply. Therefore, the total money supply flowing in the economy is not a determinant of the supply curve.

III. Cost of running operating capacity at a given level: The cost of running operating capacity refers to the expenses incurred by producers to maintain and operate their production facilities. This includes costs such as wages, utilities, and raw materials. The cost of running operating capacity plays a crucial role in determining the supply curve. When the cost of running operating capacity increases, producers may be less willing to supply goods and services at a given price, resulting in a leftward shift of the supply curve. Conversely, if the cost of running operating capacity decreases, the supply curve may shift to the right, indicating an increase in the quantity supplied at a given price.

IV. Prices of related goods: The prices of related goods, such as substitute goods or complementary goods, can influence the supply curve. If the price of a substitute good increases, producers may shift their resources to produce the more profitable substitute, resulting in a decrease in the supply of the original good. This would cause the supply curve to shift to the left. On the other hand, if the price of a complementary good increases, producers may increase the supply of the original good to take advantage of the higher demand for the complementary good. This would cause the supply curve to shift to the right. Therefore, the prices of related goods can impact the supply curve.

Based on the analysis above, the factors that determine the supply curve are: I. Supply curves of factor resources. III. Cost of running operating capacity at a given level. IV. Prices of related goods.

Therefore, the correct answer is option B. III & IV.