2.2 Supply Flashcards
-Fixed Capital
A real, physical asset that is used in the production of a product, but is not used up in the production.
- Don’t change as you produce more
- Ex: buildings
-Variable resources
change as you produce more of a good or service
- Producers are
people, companies, or countries that make, grow, or supply goods, services, or resources in a market
-Supply is
the quantity of a good or service that producers are willing and able to offer at various prices during a specific time period;
-Effective Supply:
producers can’t just be willing to produce a good or service, they must have the finances to be able to produce it.
-Individual supply
is the supply of one product from one firm at every price
market supply
is the sum of all the individual supplies of a product at every price
law of supply
as the price of a product increases, the quantity of the supply will usually increase.
Assumptions of law of supply:
- Ceteris paribus
- Law of diminishing marginal returns
- Increasing marginal costs of production (MGOP increases as output increases)
Marginal returns
refers to the additional output gained from adding an additional unit of input to a production process.
Marginal costs
is the cost of producing one more unit of a good.
Law of diminishing marginal returns states that
adding more of one factor of production, while holding at least one other factor of production constant, will at some point yield lower marginal returns.
-Total returns will
continuously increase until marginal returns are zero
-When marginal returns are negative, then total returns
decline
non-price determinants of supply
Factors that shift the entire supply curve
Quantity supplied
refers to a specific quantity offered by producers at a specific price
-Supply
refers to an entire supply curve of a good or service.
Shift in a supply curve occurs
non-price determinents change
Movement on the supply curve
price of good changes
non-price determinants of supply
- change in cost of factors of production
- Firm tech
- Future expectation
- # of firms in the market
- business confidence
- Taxes and subsidies
- Natural disasters
-Future expectation:
If firms expect prices of the products they sell to increase in the near future, they might withhold their current production (hoard) with hopes to sell at a higher price in the future.
-Business confidence:
If producers expect the economy to do well, they will expect consumers to have more spending money, and that the consumption of goods and services will increase. This could cause them to increase supply.
Joint supply
occurs when two or more goods are derived from the same product, so producing more of one would mean also producing more of the other.
- The second good is called the by-product
Competitive supply
is when two goods are produced using similar resources and processes, so to supply more of one good means to produce less of the other.
How do governments intervene in markets to change supply:
- Indirect taxes are taxes imposed on a good or service, and adds to the selling price.
- A subsidy is an amount of money granted by the government to a firm or industry
- Regulations are rules made by the government that require a certain behaviour of individuals, firms, etc.
