1.2.4 Supply Flashcards
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 tje 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 and opportunity to sell more - and at higher prices - so they increase supply, moving to the right along their supply curve
