1.2.4 Flashcards
What is supply?
The quantity of a good or service producers are willing and able to supply at a given price in a given period of time.
What is the law of supply?
That as price rises, so businesses expand supply. Higher prices provide a profit incentive for firms to expand production.
What does the supply curve show?
Relationship between market price and how much a firm is willing and able to sell.
What are three main reasons why the supply curve is upwards slopping (positive relationship) between the market price and quantity demanded?
-The profit motive
-Production and costs
-New entrants coming into the market
How does the profit motive make a positive relationship between the market price and quantity supplied on a supply curve?
When the market price rises following an increase in demand, it becomes more profitable for businesses to increase their output
How does production and costs make a positive relationship between the market price and quantity supplied on a supply curve?
When output expands, a firm’s production costs tend to rise, therefore higher price is needed to cover these extra costs of production.
How does new entrants coming into the market make a positive relationship between the market price and quantity supplied on a supply curve?
Higher prices may create an incentive for other businesses to enter the market leading to an increase in total supply
What causes the supply curve to shift to right?
Increase in supply
What causes the supply to shift inwards?
Decrease in supply
What factors cause a shift in the supply curve?
-Changes in costs or production
-Changes in technology
-Government taxes and subsidies and regulations.
-Changes in climate in agricultrual industries.
-Changes in the prices of a subsidies in production.
-Number of producers in the market and their objectives
How do lower costs of production influence supply?
Business can supply more at each price
Cost savings passed thru supply chain to wholesalers and retailers
If costs of production increase what is the affect on supply?
Businesses cannot supply as much as the same price and this will cause an inward shift of supply curve
How does a fall in the exchange rate influence supply?
Increase in prices of imported componenets and raw materials and will lead to decrease in supply
How does changes in technology influence supply?
Production technologies can change quickly and in industries where change is rapid we see increase in supply and lower prices for the consumer,
How does government taxes, subsidies and regulations influence supply?
indirect taxes cause an increase in production costs (inward)
Subsidies bring fall in supply costs (outward shift)
Regulations increase production costs (inward)
