2.3 Supply Flashcards
Supply
The willingness and ability of firms to provide goods and services at each price in a given time period
Law of supply
The quantity supplied varies directly with the price
Why is the law of supply a thing (profits)
- Higher profits are likely to be earned if firms supply more
Individual supply
The supply of a good or service by a single producer
Market supply
The total supply of a good or service as a result of adding together all the individual supplies in the market
What causes a shift in the supply curve (6)
give examples for each point
- Cost of production- increased price in raw materials or wages
- Taxes and subsidies- An indirect tax would decrease supply as rise in cost of production.
- Technology- better technology that produces quicker and cheaper will increase the supply. e.g. mechanisation of farming
- Climate- If there is bad weather, agriculture production can go down
- Increase in the number of producers or size of firm- If there are more people supplying, it will shift to the right
- Government regulation- If they implement extra regulations that are hard to adhere to, supply goes down e.g. higher minimum wage
Consequences for firms when they supply more (3)
- Economies of scale- producing more at every price leads to fall in average costs
- Efficiency Can produce more with same resources
- Sales- Being able to supply more at a lower price would mean more sales
What is a movement along the supply curve
When the pice chages, leading to a movement up (expansion) or a movement down (contraction).
What would cause a movement along the supply curve
Changes in price
Which are caused by shifts of the demand curve.
If price rises, because of more demand, what will the supplier want to do
The supplier will want t supply more, so there will be a shift along the supply curve to a higher price and higher quantity
Consequences of shifts of the supply curve
- Quantity supplied will move the same way as price
What is the effect of an increase in supply due to a rightward shift in supply
Price falls and the quantity supplied increases
What is the effect of an decrease in supply due to a leftward shift in supply
Price will increase and quantity demanded will decrease.
What is the effect of decrease in quantity supplied due to a fall in price (leading to a movement down the supply curve)
Both price and quantity supplied will fall
What is the effect of quantity supplied increasing due to a rise in price (leading to a movement up the supply curve)
Both the price and the quantity supplied will increase
What is Price elasticity of supplu
The responsiveness of quantity supplied to a change in price of theproduct
Elastric supply
The percentage change in quantity is greater than the percentage change in price
Inelastic supply
The percentage change is smaller than the percentage change in price
How do you calculate PES
% Change in Quantity/ % Change in price
If PES is 0-1 what is it
Inelastic
If PES is 1- ∞ what is it
Elastic
What is the effect of PES on consumers
Talk about when it is elastic and inelastic
If PES is inelastic, it will mean they have to pay a higher price to get more of the product.
e.g. Sports tickets or train tickets
If PES is elastic, it is relatively easy to obtain the product, but there is less flexibility in negotiating price, because prices dont change that much
What PES do producers normally want and why.
Elastic- So that they can easily respond to changes in price. If there is a large increase in price, they can supply at that price level and uantity and therefore gain more profit.
How can producers increase their PES (4)
- Using the latest technology
- Creating spare storage capacity
- Improving storage to increase life of the product
- ## Keep large amounts of stock
