1.2 Supply Flashcards
what is supply?
when a producer is willing and able to sell a good
draw a supply curve
as the price of a good increases, the profit that can be made for the producer incraeses and so they have more of an incentive to supply a larger quantity
define supply
the quanitity of a good or service that firms are willing to sell at a given price over a given time period
what are the assumptions of a supply curve?
- firms want to maximise profits
- doesn’t consider why the price increases
- just tells us what were to happen if price increases
what are the conditions of supply? (5)
- weather
- technology
- cost of production (profit & incentive, cannot afford)
- number of suppliers
- productivity
shift inwards/ outwards
what is excess supply/ surplus?
the gap between supply and demand at a given price
* producers will decrease their prices to get eliminate excess supply
* (when price is above equalibrium price)
when is there equilibrium?
quantity supplied = quantity demanded
supply and demand meet
what is the excess supply/demand at
* 70p
* 40p
* 50p
incease in supply
- s1 to s2
- leading to p1 to p2 (decrease in price)
- because Q1 to Q2 (quantity supplied increased)
what is price elasticity of supply?
a measure of the responsivness of quantity supplied to a change in price
what is the formula for price elasticty of supply?
PES = %change in quantity supplied / %change in in price
%ΔQs/ %ΔP
what is the range of PES elastic, inelastic, unitary elastic?
- Elastic: 1- ∞
- Inelastic: 0-1
- unitary elastic =1
what do the elastic and inelastic supply curves look like?
what are the five main factors which effect elasticity of supply?
- time
- state of the economy
- availibilty of factors of production
- spare capacity
- stockpile& perishability
TEASS
what does spare capacity mean?
how much capacity is there that is not being used
how does spare capacity affect price elasicity of suppply?
the larger the spare capacity, the more price elastic something is, as they can actually respond to change in price
how does availbility of factors of producition affect price elasticity of supply?
how easy is it to find factors of production
the higher the availibity of factors of production, the more elastic it is likley to be, as it is alot more easier to respond to chnag ein price and supply more
how does the state of the economy affect price elasticity of supply?
- bad state of economy, more easy to hire workers/ expand business and respond to changes in price- more elastic
- good state of the economy, less easier to expand business and respond to changes in price- inelastic
how does stockpiles & perishability affect price elasticity of supply?
- the more perishable a good, the more inelastic
- if good is able to be kept in stockpile, then if prices chnage they can immediatly supplied, elastic
what are the specific quanitities of short run and long run in terms of production/supply?
- short run: when at least one factor of production is fixed
- long run: when all factors of production can be changed
how does time affect price elasiticity of supply?
- short run: price inelastic as they cannot respond due to a factor os production being fixed, cannot produce more
- long run: price elastic as they can respond to changes in priceand produce more
argriculture and farmers
what is the value of a perfectly inelastic supply, perfectly elastic supply?
- perfectly inelastic: PES=0 [I]
- perfectly elastic : PES= ∞ [-]
What are some examples of perefctly inelastic goods (price elasticity of supply) ?
- short run: farmers, football match tickets (maxium capacity)
What is joint supply?
When supply of a particular good also leads to supply of a by product. The production process leads two or more different outputs. Increase in production leads to an increase in the by product
Eg: milk, whey
What is competing supply?
When a goods can be put to more than one use. Employing it in one form means that it cannot be used in another manner. Situations where the factors of production are used to produce different goods
eg: if a farmer decides to use his land to rear cows then he may not be able to rear other animals
what is the marginal cost?
the cost of supply each extra unit of a good
define supply
the quanitity of a good or service that firms are willing to sell at a given price over a given time period
equilibrium price/quantity
demand equals supply so there are no more market forces bringin about chnage to price or quantity demanded
excess demand
when the price is set too low so demand is greater than supply
excess supply
when price is set too high so supply is greater than demand
