3.3 The Supply Of Goods And Services Flashcards
What is market supply
Quantity of a good sold at a given price in a given period of time
What is total revenue?
All the money received by selling the total output
Qty sold X price
What is market supply made out of?
The supply of all the firms in a market at different prices
If the price for a good increases the supply….
Increases too
Why does the supply curve go upwards?
Because of the profit maximising objectives which economists assume firms have
What is profit?
Total revenue-total cost
When does the supply of the good vary?
Over the time period being considered
What is a condition of supply?
Determinant of supply other than the goods own price that fixes the position of the supply curve
What are the main conditions of supply?
-cost of production(wage,raw materials, energy and borrowing)
-technical progress
-taxes imposed on firms
-subsides
An increase in supply shifts the supply curve to the…
Right
A decrease in supply shifts the supply curve to the…
Left
When a tax is imposed by the gov what happens to the supply curve?
Shifts to the left
What do the firms do with the tax and how do they do this?
Try and pass it onto the consumer by increasing the price of the good
How is expenditure tax an indirect tax?
The higher price charged means the consumer pays the tax
What are the two factors that can change the shift of the supply curve?
-specific tax
-ad valorem tax
What happens to the supply curve after an ad velorum tax?(e.g VAT)
-a lot steeper
(Tax according to value) e.g a %
What happens to the supply curve after a specific tax?
Tax does not depend on goods price therefore the new supply curve is parallel just shifted to the left
What has the opposite effect to an expenditure tax?
A subsidy
What does a subsidy do to the supply curve?
Shifts it to the right
What is a subsidy
Money given to firm by gov to increase supply of a product or keep the price low
When would the size of the subsidy very?
If the subsidy were dependent on the price of the good
What is the supply graph like when there is a Specific subsidy?
Some of money paid to firms for each unit=price of good
Hence a vertical difference between supply curves
supply curve diagram
contraction in supply diagram
effect of a subsidy on the supply curve diagram
effect of a specific tax on supply diagram
effect of indirect tax on supply(diagram)
(because firms pass on costs to consumers-changes elasticity)
