2.2 Supply Flashcards
What is supply
Quantity of goods and services a firm/producer is willing and able to supply to the market for sale at different possible prices, during a particular time period
Law of supply
Positive relationship between the wnuaity of a good supplied and its price
As the price of a good increases, quantity supplied also increases
Market supply
The sum of all individual firms/producers supplies for a good
What causes a movement along the supply curve
Changes in price
What causes shifts of the supply curve
Non-price determinants of supply
What are the non price determinants of supply
- cost of factors of production
- increases in technology
- prices of related goods (competitive supply + joint supply)
- producer price expectations
- taxes
- subsidies
- the number of firms
Explain the non-price determinant of the costs of factors of production
If factor prices rise, production costs increase, production becomes less profitable and firm decreases supply
Explain the non-price determinant of improvements in technology
Improved technology lowers production costs, making production more profitable, increasing supply
Explain the non-price determinant of competitive supply
Refers to the production of one good or another good by a producer
A fall in price in good A, results in an increase in good B supply, as it is now more profitable
Explain the non-price determinant of joint supply
Refers to production of goods that are derives from a single product
Increase in price of Good A, leads to increase in its quantity supplied and also an increase in supply of the other joint products
Explain the non-price determinant of producer price expectations
If firms expect the price of their products to rise, they may withhold some supply expecting that they are able to sell it for a higher price, decreasing supply
Explain the non-price determinant of taxes
When taxes are imposed, firms cost of production increases, so supply will decrease
Explain the non-price determinant of subsidy
Imposition of subsidy, lowers the production costs, increasing supply
Explain the non-price determinant of the number of firms
An increase in number of firms producing the good, increases supply
Law of diminishing marginal returns
As more and more units of a variable input (labour) is added to one of more fixed inputs (land), the marginal redirect at first increases, but there comes a point where it begins to decrease
E.x to many farmers on land, due to overcrowding , each worker has less land to work with
