8) Theory Of Supply Flashcards
Give example of changes in the cost of production
⚫️input price may change;
➡️rent, raw material, wages
⚫️changes in technology reduces cost
➡️self service checkout in supermarkets
➡️reduces amount of workers required
➡️and cost of wage
⚫️subsidies and taxes
➡️subsidies reduce cost of production
➡️tax increases costs
How is changes in the cost of production a non-price determinant of supply
⚫️lower the cost
➡️increases profit
➡️firm can produce more
➡️ceteris paribus
Name all the non-price determinants of supply
⚫️changes in the cost of production
⚫profitability of alternative products
⚫️joint supply
⚫️composite demand
⚫️random shock
⚫️speculation and expectations of future price changes
How is profitability of alternative products a non-determinants of supply
➡️use example of tablet computers
⚫️if a substitute in supply
➡️becomes more profitable
➡️firms swap production to it
⚫️the supply of tablet computers risen
➡️manufacturers move from less profitable laptop and desktop production
How is joint supply a non-price determinants
Use example of cows
⚫️a good is in joint supply with another good
➡️if it has two or more uses
⚫️for example cows
➡️supplied for both leather and beef
➡️increase in supply of beef
➡️increases supply of leather too
How is composite demand a non-price determinant of supply
⚫️goods that are demanded for two or more purposes
⚫️milk used to make
➡️cheese,cream,yogurt and butter
➡️an increase in demand for cheese
➡️less yogurt supplied
Speculation and expectations of future price changes
⚫️if firm expects prices to rise of its goods or commodities in future
➡️will hold onto its stock now
➡️and release onto the market at a later date
How is random shocks a non-determinant of supply
⚫️stikes, weather, wars, terrorist attacks, earthquakes
➡️reduce ability of producers to supply goods and services
