1.2.2 - Supply Flashcards
Define Supply?
Supply is measured in terms of the quantity of a good or service that a producer is willing and able to make available on the market, at a given price, over a given period of time.
Name the Non-Price Factors that affect Supply?
- Cost of Production
- Introduction of new technology
- Indirect taxes (e.g VAT)
- Government subsidies
- External shocks
How does price determine the level of supply?
Price and supply are related
- As price goes up on a product or service, normally, a business will want to supply more, in anticipation of higher profits.
How does Cost of Production affect Supply?
If the costs of production increases e.g due to a rise in the cost of materials or due to a rise in the minimum wage
- The business may decide to produce less
- Prices may have to go up
- The product will have lower sales
How does Introduction of New Technology affect Supply?
New technology means that more goods can be supplied
- Mechanisation and automation of production processes means supply can increase
- Mass production methods improved to increase capacity
- Using new technology means that costs can be reduced and that means that they can offer lower prices to the customer.
How does Indirect Taxes affect Supply?
When the government increases tax on goods, such as petrol, then the supply will decrease
- VAT, Customs tax, excise tax are all indirect taxes and when applied to goods it makes supplying them less attractive. This can lead to a decrease in supply.
How does Government Subsidies affect Supply?
- This is a payment from the government to encourage more suppliers to enter the market and supply more. With a subsidy there is an increase in supply because costs have been lowered thanks to the subsidy.
How does External Shocks affect Supply?
External shocks may mean that the business may not want to supply at current levels, these shocks may be;
- Changes in oil prices
- War
- Weather problems
- Changes in labour laws
