Explain and Demonstrate Graphically the Effects of a Negative Supply

question 34

Essay

Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run.

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Definitions:

Materials Price Variance

The difference between the actual cost of materials used in production and the standard cost that was expected or budgeted.

Materials Quantity Variance

The difference between the actual amount of materials used in production and the standard amount expected, measured in terms of cost.

Labor Price Variance

The difference between the actual cost of direct labor and the standard or expected cost.

Labor Quantity Variance

The difference between the actual labor hours used and the standard hours planned, multiplied by the standard hourly labor rate.