Determinants of Supply Flashcards
What Relationship does the Supply Curve show?
The relationship between price and quantity supplied.
Definition of Supply
The amount of a good or service that producers are willing and able to sell at any given price.
Determinants of Supply
- Price of the good
- Impact of changing costs of production
- Technological progress
- Prices of other goods and services
- Government policy
- Other factors e.g. expectations
Impact of Changing Costs of Production as a Determinant of Supply
If the cost of production increases, it will become more expensive to produce the product, so some firms will reduce output.
Technological Progress as a Determinant of Supply
Firms can now produce goods and services in a more efficient and cost effective manner.
Cost per unit produced deceases due to large scale machinery spreading fixed costs over greater output.
Prices of other Goods and Services as Determinants of Supply
If the price of good A increases it may make it more profitable to switch to supplying that good.
Government Policy as a Determinant of Supply
Indirect taxes make it more expensive to produce a product, so quantity supplied will decrease.
Subsidies make it cheaper to produce a product, so quantity supplied will increase.
Other Factors as Determinants of Supply
Expectations, degree of market competition and power of firms within a market all impact the quantity supplied of goods and services.
Marginal Cost Definition
The cost of producing one additional unit of output.
Law of Diminishing Marginal Returns
When, if one factor of production is fixed, beyond some point additional units of input will provide less and less extra output.
