1.2.4 Supply Flashcards
Supply
the quantity that will be supplied by a firm at a specific price during a given time period
Supply curve graph
An upwards slope since if the price increases, then it is more profitable for firms to isupply the good, so supply increases
- higher price = greater quantity supplied
Why do higher prices mean greater quantity supplied?
- High prices encourage new firms to enter the market since it seems profitable, so supply increases
- Firms with large outputs, have increased costs since firms that produce more need to charge a higher price to cover costs
Supply curve graph explained
- At price P1, a quantity of Q1 is supplied. At the lower price of P2, Q2 is supplied.
- This is a contraction of supply.
- If price increases from P2 to P1, QS increases from Q2 to Q1.
- This is an expansion of supply. Only changes in price will cause these movements along the supply curve. This is based on the theory of the profit motive. Firms are driven by the desire to make large profit
What happens to supply if you change the price?
Price change moves along the curve (higher price moves high up on the curve)
What causes a right/down (outward) shift in the supply curve?
The price stays the same but a larger quantity of goods is supplied
Factors affecting supply
P: cost of productions/price of the good itself (rising price incentivises greater production & the higher the price the more firms can supply)
C: Price of other goods/competition (their demands can influence supply of substitutes)
Q: Quality of labour/skill (productivity)
T: Technology (more advanced causes an outward shift)
W: Weather (favourable conditions affect agriculture)
E: External shock (e.g depreciation in the exchange rate will increase the cost of imports)
G: Government taxes & subsidies
(Poor cats question the wild eerie government)
Subsidy
a payment from the government to a producer to make something less expensive (renewable energy)
