2.2 Flashcards
supply
the quantity of a good or service that producers are willing and able to offer at various prices during a specific time period, ceteris paribus
individual supply
the supply of one product from one firm at every price
supply schedule
a table that shows the quantity supplied of a good or service at different prices
the law of supply
as the price of a product increases, the quantity supplied will usually increase, ceteris paribus: the positive relationship between the price of a product and the quantity supplied of it explains the upward slope of the supply curve
market supply
the sum of all the individual supplies of a product at every price
what causes movements along the supply curve and shifts of the supply curve
price changes - movements along the curve
change in quantity supplied - movements along the curve
change in supply - shifts of the supply curve
what are the non-price determinants of supply and shifts of supply curve
costs of production, technological change, prices of related goods (competitive supply), prices of related goods (joint supply), future expectations, the number of firms in the market, government interventions, shocks
non-price determinants of supply
all factors affecting supply other than the price, causing the entire supply curve to shift
costs of production
if there’s an increase in the cost of a factor of production (labour, capital, land, entrepreneurship) of a good or service - supply decreases - supply curve shifts inwards
improvements of technology cause
increase of productivity and supply curve to shift outwards
productivity
the quantity of output per unit of input
competitive supply
if a firm sells good B more than a good A, demand for B is higher, so price of B is higher, so supply of B becomes higher and supply curve shifts outwards
joint supply
when two or more goods are derived from the same product so that it is not possible to produce more of one without producing more of the other (cheese and butter)
by-product
the second good in a joint supply
expectations about the future prices and supply
hoarding - accumulating or storing a good or resource in order to prevent its release into a marker for self-use or profit-making purposes
if people expect prices to increase
hoaring
if people expect prices to decrease
increase supply do avoid lower prices and revenues in the future
expectations about the future of economy and supply
business confidence; if economy does well, people will have more money to spend and consumption increases, so they increase supply, vice versa
the number of firms in the market and supply
when the number of firms that offer the same good increases, the market supply also increases, shifting the supply curve of that good outwards
government interventions and supply
indirect taxes, subsidies and regulations
indirect taxes
tax imposed on a good or service; it is typically paid to the government by the producer o supplier and is considered a cost of production (like fuel tax)
if indirect tax increases
the cost of supply increases, so supply decreases
if indirect tax is eliminated
supply increases, so price for consumers decreases
subsidy
the amount of money granted by the government to a form or industry (the opposite effect of taxes)
regulations
a rule made by the government that requires certain behavior of individuals, firms or other groups (to protect consumers, workers’ health and safety, environment)
shocks
sudden unpredictable events like wars, natural disasters, spilled oil in the sea, pandemics
law of diminishing marginal returns
adding more of one factor of production (input), while holding at least one other factor of production constant, will at least at some point, yield lower marginal returns (output/product)
what happens when supply and demand meet
they agree n the price; this is where exchange happens between consumers and producers; equilibrium
consumer surplus
consumers’ willingness to pay (WTP) - price that consumers actually pay = benefit (utility) consumers get from paying a price lower than the one they’re willing to pay
producer surplus
price that producers actually ask - producers’ willingness to accept (WTA) = benefit producers get from asking a price higher than the one they’re willing to accept
social (community) surplus
consumer surplus + producer surplus = total benefit (utility) to society
at market equilibrium in free markets:
social surplus is maximized , so market is socially efficient/ in a state of allocative efficiency = optimal (most efficient) allocation of resources
