4.1.3.3 the determinants of the supply of goods and services Flashcards
what is supply?
the quantity of a good or service that a producer is able, and willing to supply at a given price during a given period of time
why are supply curved upward sloping?
- if price increases, it’s more profitable for firms to supply the good, so supply increases
- high prices encourage new firms to enter the market, because it seems profitable, so supply increases
- with larger outputs, firms costs increases, so they need to charge a higher price to cover the costs
what does the law of supply state?
states that ceteris paribus, there is a positive relationship between quantity supplied and the price of a good/service
therefore the supply curve will slope upwards
what is profit and what is revenue?
profit = revenue - costs
revenue = price x quantity sold
movements along the supply curve?
at price P1, a quantity of Q1 is supplied. at a lower price of P2, Q2 is supplied
-> this is a contraction of supply
if price increases from P2 to P1, QS increases from Q2 to Q1
-> this is an expansion of supply
only changes in price will cause these movements along the supply curve
based on the theory of the profit motive
- firms are driven by the desire to make large profits
when does the supply curve move left and right?
moves left when there’s a decrease in the amount supplied at every price
moves right when there’s an increase in the amount supplied at every price
what are the 7 factors that shift the supply curve?
PINTSWC
Productivity
-> higher productivity causes an outward shift in supply, because average costs for the firm fall
Indirect taxes
-> inward shift in supply
Number of firms
-> more firms = larger supply
Technology
-> more advanced tech causes an outward shift in supply
Subsidies
-> cause an outward shift in supply
Weather
-> for agriculture produce, favourable conditions increase supply
Costs of production
what is the supply curve under perfect competition?
the supply curve is the marginal cost curve (MCC)
