Chapter 3 - supply Flashcards
SUPPLY
describes how much of a good / service producers = offer for sale under given circumstances
QUANTITY SUPPLIED
is the amount of a particular good or service that producers will offer for sale at a given price at a specified period
LAW OF SUPPLY
all else held equal, quantity supplied increases as price increases, and vice versa
THE SUPPLY CURVE
is a graph of the information in the supply schedule.
- ->Just as the demand curve = showed consumers’ willingness to buy – > the supply curve = shows producers’ willingness to sell:
- ->It shows the minimum price producers must receive to supply any given quantity
DETERMINANTS OF SUPPLY
the law of supply = describes how the quantity that producers = willing to supply changes as prices changes.
what determines the quantity supplied at any given price?
As w/ demand, a # of non-price factors = determine the opportunity cost of production & therefore producers’ willingness to supply a good / service
- When a non-price determinant of supply changes – > the entire supply curve = will shift
- Such shifts = reflect a change in the quantity of goods supplied at EVERY price
(5) non-price determinants of supply
- Prices of related goods
- Technology
- Prices of inputs
- Expectations
- And the # of sellers
WHAT HAPPENS WHEN ONE OF THE NON-PRICE DETERMINANTS CHANGES?
–> If positive influence, supply increases.
–> If negative influence, supply decreases.
PRICES OF RELATED GOODS
The price of related goods determines supply because it affects the opportunity cost of production
–> When you choose to produce cell phones, you forgo the profits you would have earned from producing something else
–> If the price of that something else increases, the amount you forgo in profits also increases
TECHNOLOGY
improved technology = enables firms to produce more efficiently –> using fewer resources to make a given product
–> Doing so = lowers production costs, increasing the quantity producers = willing to supply at each price
PRICES OF INPUTS
the prices of the inputs used to produce a good = an important part of its cost
–> When the prices of inputs increase –> production costs rise & the quantity of the product that producers = willing to supply at any given prices = decreases
EXPECTATIONS (from the producer’s perspective)
supplier’s expectations about prices in the future = also affect quantity supplied
Example: when expectations change & real estate prices = projected to fall in the future
–> many of those projects = will be rushed to completion, causing the supply of houses to rise.
OF SELLERS (e.g., restrictions, such as regulations)
*NOTE, the market supply curve = represents the quantities of a product that a particular # of producers = will supply at various prices in a given market.
–> This means that the # of sellers in the market = considered fixed!!!
–> we have seen that sellers in the market = will decide to supply more if the price of a good = higher.
–>This does not mean that the # of sellers = will change based on the price in the short term
there are however, non-price factors that cause the # of sellers to change in a market & move the supply curve:
–> Strict licensing requirements
SHIFTS IN THE DEMAND CURVE
just as w/ demand, changes in price = causes suppliers to move to a different point on the same supply curve;
While changes in the non-price determinants of supply shift the supply curve itself.
- -> When supply increases, the supply curve shifts to the right.
- -> When supply decreases, the supply curve shifts to the left.
affects of the non-price determinant & change of price?
a change in a non-price determinant = increases / decreases supply;
–> While a change in price = increases / decreases the quantity supplied
