1.2.4 Supply Flashcards
(26 cards)
define supply
the amount of a commodity that firms are willing and able to sell at a given range of prices in a given period of time
define a firm
an organisation that brings together factors of production in order to produce output
describe the relationship between price and quantity supplied
positive because as price increases quantity supplied increases as firms are incentivised to increase output
how does the relationship between price and quantity supplied hold
holds assuming ceteris paribus, all other things being equal
what two things explain the relationship between price and quantity supplied
- profit incentive
- production costs
explain the profit incentive
as price increases the profit per unit increases too, encouraging firms to expand and shift more resources into production
explain production costs
firms face increasing production costs in the short run as they expand output therefore prices must rise to cover these and encourage greater supply
Define market supply
The total supply brought to the market by producers at each price
How do you calculate market supply
Sum all the individual supplies
Why does the supply curve slope upwards
There is a positive relationship between quantity and price
What causes a movement along the supply curve
A change in price
What is the effect of an increase in price on the supply curve
Movement up the curve causing an expansion in supply
What is the effect of a decrease in price on the supply curve
Movement down the curve causing a contraction in supply
What causes a shift in supply
Non price factors
What is the consequence of a rise in demand for supply
If demand rises, producers see an opportunity to sell more - and at higher prices - so they increase supply, moving to the right along their supply curve
What is the consequence of a fall in demand for supply
If demand falls there is a movement to the left along their supply curve as producers decrease supply
What happens to supply if costs rise
Supply is less profitable so the supply curve shifts to the left
What happens to the supply curve if costs fall
The curve shifts to the right
What are the factors affecting supply
- Productivity
- Indirect taxes eg VAT
- Number of firms in the market
- Technology
- Subsidies
- Weather
- Cost of production
What is the impact of productivity on supply
More productive = more supply as unit costs tend to fall
What is the impact of indirect taxes on supply
Eg. VAT
High indirect taxes = supply likely to fall as production costs rise
What is the impact of number of firms in market on supply
Larger number of firms in market = greater supply
What is the impact of technology on supply
New technology likely to lead to higher output = greater supply
What is the impact of subsidies on supply
Likely to lead to greater supply as it lowers the cost of production
