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
Marginal costs relation to diminishing marginal returns
When marginal product increases, marginal cost decreases
When marginal product is maximum, marginal cost is minimum
When marginal product falls, marginal cost increases
