1.2.4 - supply Flashcards
What is the law of supply?
There is a positive relationship between price and quantity supplied.
Why do supply curves slope upwards?
As price rises, profit margins increase making it more lucrative to produce.
What causes a movement along a supply curve?
A change in price ceteris paribus.
What does an increase in price do to quantity supplied?
Increase in price leads to an extension in the quantity supplied
What does a decrease in price do to quantity supplied?
Decrease in price leads to contraction in quantity supplied.
What are shifts of supply?
Changes in the level of supply
Where does the supply curve shift if supply increases?
To the right
Where does the supply curve shift if supply decreases?
To the left
What are shifts in supply caused by?
Changes in the price, quality or quantity of FOPs and taxes/subsidies.
How do prices of FOPs affect supply?
Increased price = decreased supply
Decreased price = increased supply
How does the quality of FOPs affect supply?
Better quality reduces cost of production, increasing supply eg. training, better technology
How does quantity of FOPs affect supply?
Increased quantity = increased supply and vice versa
How do taxes affect supply?
They increase cost of production and decrease supply.
How do subsidies affect supply?
They decrease cost of production and increase supply.
