1.2.4 - Supply Flashcards
What is supply?
Supply is the ability and willingness to provide a good or service at a particular price at a given moment in time.
What are the factors that affect a change in supply?
Cost of production - Fall in COP leads to an increase in the supply of a good because supply curve shifts downwards and to the right. Lower costs means businesses can supply more at each price firms benefit from this lower cost of raw materials. If COP increase businesses cannot supply as much at the same price cause inward shift on supply curve.
New Technologies - if new technology is introduced to the production process lead to a fall in the COP. This greater productive efficiency encourages firms to produce more at same price or same amount at lower price. Supply curve shifts to right and down
Prices of Other goods - A substitute in production is a product that could have been produced using same resources. Like increase in price of barley farmers grow more wheat.
What are other factors affecting a change in supply?
The Government - Anti pollution controls increases taxes increase in costs cause supply curve to shift upwards and to left. less will be supplied after tax is introduced. Simplifying laws/removing barriers to entry setting up business curve shifts right.
The number of producers in the market - When new firms enters market supply increases curve shifts to right downward pressure on market price
Weather - For agricultural commodities such as coffee and fruits climate change exert influence on supply. Favourable weather produce a large harvest. Unfavourable weather such as drought lead to poor harvest and decrease in supply. Unpredictable changes in climate has large effects on market prices for agricultural goods.
What are movements and shifts along the supply curve?
A movement along supply curve is caused by change in price of the good. A shift in the curve is caused by a change in any of the factor.
Movement A to B is a contraction in supply quantity of supply falls because of a decrease in price. Movement A to C is extension in supply, quantity supplied rises due to an increase in the price. movements along the curve are called shifts.
Shift from S1 to S2 is a decrease in supply fewer goods are supplied at each and every price.
If prices rise quantity supplied rises
If price falls, quantity supplied falls
Price changes result in a movement along the curve.
Why will firms produce more ?
Firms are motivated by profits, cost of production units increase as output increases.
Why will supply curves slope upwards?
If prices are higher firms increase production to take advantage of high profits that they can make. If prices are lower firms cut back on any unprofitable production.
Higher prices encourage new firms to enter as it seems more profitable output will increase.
To increase production need to use more resources which costs more.
