A Level Economics AQA Practice Exam

What role does technology play in the factors of supply?

1. It decreases production costs

2. It leads to higher prices

3. It reduces the number of firms

4. It increases supply chain length

The correct answer is: It decreases production costs

The role of technology in the factors of supply primarily focuses on its ability to decrease production costs. When firms adopt new technologies, such as automation or more efficient production techniques, they can produce goods at a lower cost per unit. This reduction in costs can allow firms to expand output since they are not only able to produce more efficiently but also can pass some of those savings to consumers. As a result, the overall supply of goods in the market increases. In addition to decreasing production costs, technology can also enhance product quality and lead to innovation, which often encourages competition and expands supply further. Thus, the integration of advanced technologies generally leads to an increase in the quantity of goods supplied at prevailing prices, reinforcing the correct choice regarding the positive impact of technology on supply factors.