A Level Economics AQA Practice Exam

Which of the following is a factor of supply impacted by government policy?

1. Population

2. Taxes and subsidies

3. Consumer preferences

4. Market trends

The correct answer is: Taxes and subsidies

Taxes and subsidies are indeed significant factors of supply that are influenced by government policy. When the government imposes taxes on businesses, it increases the cost of production, which can lead to a decrease in the supply of goods and services as firms may produce less due to higher expenses. Conversely, subsidies provided by the government can lower production costs, encouraging firms to increase their output. This direct influence of government policies on the costs faced by producers makes taxes and subsidies crucial elements in analyzing how supply responds to different economic conditions. Population, while it can affect demand, does not directly impact supply from a government policy standpoint. Similarly, consumer preferences and market trends may shift supply but are primarily determined by changes in consumer behavior and broader market developments rather than direct government intervention. Thus, they are less relevant in this context when considering government policy's effects on supply factors.