O-LevelEconomicsThe allocation of resources2281/12 · May/June 2023 · Q71 Mark
The diagram shows the supply curve for coffee. [Figure 7.1: Graph showing price on y-axis and quantity on x-axis, with an upward sloping supply curve. Points P1, P2 on price axis and Q1, Q2 on quantity axis are indicated along the supply curve]. The price of coffee increases from P₁ to P₂. How would this benefit firms in the coffee industry?
This question uses a diagram from the original paper, which isn't shown here. Open the full paper from the past papers archive to see it.
Ahigher price gives firms the ability to increase profits.
Bhigher price gives firms the incentive to reduce total fixed costs.
Chigher price will encourage consumers to buy more coffee increasing total revenue.
Dhigher price will encourage less firms to enter the market to supply coffee.
✓ Correct answer
A: higher price gives firms the ability to increase profits.
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