chp 8 Flashcards
Supply
The willingness and ability to sell a product
Supply and price relationship
Positively
Individual supply
Supply from one firm
Individual supply is
The supply of one firm
Market supply
The total supply of a product supplied by all the firms in the industry
Total supply of a product
A supply curve can be used to
Demonstrate how a change in the price of a product affects the quantity that is supplied. This is shown by a movement along the supply curve up or down
Extension in supply
A rise in the quantity supplied caused by a rise in the price of the product itself
Contraction in supply
A fall in the quantity supplied caused by a fall in the price and f the product itself
Quantity supply refers
Extension in supply and contraction on supply
Changes in supply
Changes in supply conditions causing shifts in the supply curve
Any change in supply will cause a shift
In the entire supply curve as there is no change in the price of the product supplied
What causes changes in supply
Improvements in technology
Cost of production
Taxes
Subsidies
Prices of other products
Weather conditions
How factors affecting supply differ in agriculture
The supply of crops, vegetables
Industry
Service sector
and fruit, and the health of livestock, may be affected by poor weather conditions. Excessive rainfall or lengthy drought can lower yields and hence supply.
These problems are becoming more serious due to the effects of climate change in many parts of the world.
How factors affecting supply differ industry
Changing costs of production and advances in technology affect the supply of almost everything that is produced For example, an increase in wages will increase the costs of production, which in turn may be offset by technological improvements that lead to a rise in productivity
Service sector
Banks and large retailers have extended the use of
IT in their businesses in order to cut costs and remain competitive.
Increase in supply
A rise in supply at any given price causing the supply curve to shift to the right
Decrease in supply
A fall in supply at any given price causing the supply curve to shift to the left
State whether the following would cause a decrease in supply or an increase in supply of tuna caught by fishing vessels from Mauritius:
an extended period of heavy rainfall and strong winds
ii a new infra-red camera that makes it easier to
detect tuna
i a rise in the price of other fish
v new concerns over ethical fishing practices
v research that shows the health benefits of
eating tuna.
i a decrease in supply
ii an increase in supply
ili an increase
in supply
iv a decrease in supply
v an increase in supply
Any change in the condition of supply leads to a shift
Outwards or inwards of the supply curve.
Describe how subsidies and taxes might affect the ability of a small vegetable farmer in Pakistan and a small light-bulb manufacturer in China to supply.
For the vegetable farmer, subsidies will reduce the price paid by consumers in local markets. The farmer’s income will be likely to increase as she sells all that she is able to produce. Subsidies may prompt
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her to switch production to crops where subsidy is greatest. A change in taxation may have little or no effect because fresh food is not usually taxed.
For the light-bulb manufacturer, a new sales tax could lead to less supply in the domestic market. A tax on its profits could mean there are fewer funds available to invest in new equipment in the factory.
Subsidies are unlikely to have any effect on supply, other than if export subsidies are given by the government.
What is the usual relationship between supply and price?
A positive one whereby an increase in price leads to an increase in the quantity supplied and a decrease in price leads to a decrease in the quantity supplied
Draw a typical supply curve. On it, show:
an extension in supply ii an increase in supply.
Explain what each means.
An extension in supply is shown by a movement up the supply curve. This is a consequence of a rise in the price of the product
An increase in supply is shown by a shift to the right of the supply curve. This means that there is an increase in supply at any given price
Give four reasons why the global supply of coffee is increasing.
Less disruption of supplies due to adverse weather conditions
An increase in subsidies from governments to coffee farmers
A large increase in the price of tea
A fall in the cost of cultivating coffee beans
A garment manufacturer in Bangladesh supplies a number of wholesale customers in the US. It faces competition from garment manufacturers in China. Explain the likely effects on the supply of garments when: i its wholesale customers force down the prices they are willing to pay
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the Chinese government provides a new export subsidy for its garment manufacturers.
This is represented by a movement down the supply curve SS from A to B. If US wholesalers reduce the price they are willing to pay from P to P, the Bangladeshi garment manufacturer will only be willing to supply a, and not Q The effect of a subsidy by the Chinese government for its manufacturers leads to a shift to the left of the supply curve since Bangladeshi garments are relatively more expensive. So, at any one price, fewer garments Will be supplied.
2
TIP
Global oil prices in 2017 stabilised at around $50 per barrel after reaching $150 per barrel in 2014. Discuss whether or not changes in supply or changes in demand have had a greater influence on price.
Changes in supply come about through the actions of suppliers (such as OPEC and US shale oil producers). An increase in supply can be shown by a shift to the right of the supply curve for oil. This would cause the price of oil to fall.
• A change in demand could also have occurred.
The reduction in the price of oil by 2017 could indicate a decrease in demand from 2014. This is less likely to have occurred.
It is not easy to say which has had the most influence on price - more than likely, it is due to supply factors. Additional data is required to be more certain.
• The diagram below could be used to explain the change in price.
Why is supply not the same as production?
A production has to take place before supply some goods produced may end up as warehouse stock
C some products supplied may not be sold D when making products, suppliers do not
know the market prices
B
What does a market supply curve show?
How much firms will sell at various prices
In 2017, drought conditions in France and Italy resulted in a reduction in olives harvested. Which shows the effect on the supply curve for olives?
A shift to the left
