1.2.4 Supply Flashcards
What is supply
quantity of a good/service producer are willing and able to supply at a given price, in a given time period
What is the law of supply
As price rises, so businesses expand supply
Higher prices provide a profit incentive for firms to expand production
What does a supply show the relationship
market price and how much (quantity) a firm is willing and able to sell
What is Market Supply
And how do we calculate it
total supply brought to the market by producers at each price
We sum individual supply schedules for each producer
If there is a rise on a price curve for supply
there is a increase in quantity supplied
If market price falls on a price curve for supply
there is a contraction of quantity supplied
Business will respond to what when making output decisions
market price signals
What are the 2 reasons why supply curves are drawn as sloping upwards, from left to right
1) Profit Motive - with increased demand, more profitable to increase output
2) Production + Cost - when output expands, production costs tends to rise, which is of set with higher price
3) New entrants into the market - high prices create incentives other business to enter market, increasing supply
6 Factors that cause a shift in the supply curve
1) Changes in Production costs - due to either lower or higher fixed cost or changes in exchange rates
2) Changes in technology - better technology = increased efficiency = lower costs
3) Government taxes, subsides + regulations
4) Changes in climate in agriculture industries
5) Changes of prices of substitution of products
6) Numbers of producers in markets and their objectives
How can competitive supply effect a market
alternate product a business could produce with its factors of production
E.g. diversion of land used in food supply, to producing biofuels and impact of global food prices
