1.2.4 The Supply Curve Flashcards
What is supply?
The quantity of a good or service that producers supply to the market at a given price, at a particular time.
What does the supply curve show?
The relationship between price and quantity supplied.
At any given point along the curve it shows the quantity of the good or service that would be supplied at a particular price.
What is movement along the supply curve caused by?
Changes in price
What is an extension in supply?
When supply increases along the curve.
What is a contaction in supply?
When supply decreases along the curve.
Which direction does the supply curve slope?
Upwards – meaning the higher the price charged for a good, the higher the quantity supplied.
What happens when the supply curve shifts to the left?
There is a decrease in quantity supplied at every price.
What happens when the supply curve shifts to the right?
There is an increase in quantity supplied at every price.
Factors causing a shift in the supply curve
- Changes to the cost of production
- Improvements in technology
- Changes to the productivity of factors of production
- Indirect taxes and subsidies
- Changes to the price of other goods
- Number of suppliers
- A firm’s expectations about future prices
How do changes to the cost of production affect the supply curve?
An increase in one or more of the costs of production (e.g. wages, raw materials, etc.) will decrease producers’ profits and cause the supply curve to shift to the left. If a cost of production decreased, the supply curve would shift to the right.
E.g. an increase in the cost of cocoa will lead to a reduction in the supply of chocolate, but a decrease in the cost of packaging would lead to an increase in supply.
How do improvements to technology affect the supply curve?
Technological improvements can increase supply as they reduced the costs of production.
E.g. improvements in the energy efficiency of commercial freezers could reduce the energy costs of a food company.
How do changes to the productivity of factors of production affect the supply curve?
Increased productivity of a factor of production means that a company will get more output from a unit of the factor.
E.g. more productive staff will lead to an increase in output and shift the supply curve to the right.
How do indirect taxes and subsidies affect the supply curve?
An indirect tax on a good effectively increases costs for a producer – this means that the supply is reduced and the supply curve is shifted to the left.
A subsidy on a good encourages its production as it acts to reduce costs for producers – this leads to an increased level of supply and the supply curve shifts right.
How do changes to the price of other goods affect the supply curve?
If the price of one product (A) made by a firm increases, then a firm may switch production from a less profitable one (B) to increase production of A and make the most of the higher price that they can get for it. This decreases the supply of product B.
How does the number of suppliers affect the supply curve?
An increase in the number of suppliers in a market will increase supply to the market, shifting the supply curve to the right.
A decrease in the number of suppliers will shift the curve to the left.
