economics 5 Flashcards
supply
the ability and willingness of firms to provide goods and services at each price in a given time period
law of supply
the quantity supply varies directly with price
causes of supply curve slopes upwards
firms are likely to gain higher profits by supplying more.
production costs are likely to rise as more is produced.
this enables new firms to enter the market as they often have higher costs.
individual supply
the supply of a good or service by an individual producer.
Market supply
the total supply of a good or service found by adding together all individual producers supplies.
causes of shifts of the supply curve
increase in costs of production-producers would supply less at each price
increase in tax and subsidies-increase in indirect taxes means a rise in costs.
increase in subsides means the opposite
New technology-is likely to a fall in costs and thus a rightward shift
climate change-in agriculture, climate warming may mean less can be supplied of a product.
increase in producers or size of firms-both will lead to more being supplied at every price: a rightward shift.
government regulation-introduction of new government regulations such as health and safety will increase costs leading a shift to the left
consequences of shifts of the supply curve
can gain greater economies of scale- greater profits for the producer and/or lower prices for consumers.
increase in efficiency- increase in profit and also possibly greater productivity
increase in sales- if price falls then consumers are likely to buy more leading to increase in profit
increase in exports-greater economies of scale , increases in efficiency and fall in price makes the firm more competitive.
become a monopoly/oligopoly-if a firm is more competitive it gains market shares and forces competitors out.
increase in price and quantity cause
producers-initial increase in profits, more firms enter the market shifting supply to the right which might reduce profit
consumers-products are now more expensive, price falls. consumers have more choice and can buy more products, consumers can afford more, but now have less choice
decrease in price and quantity cause
producers-reduction in profits: less efficient firms forced out. reduction in output
consumers- consumers can afford more ,but now have less choice
price elasticity of supply
0 - there is no change in quantity as price changes
between 0 and 1 - change in quantity is less than change in price
1 - change in quantity is equal to the change in price
between 0 and infinity - change in quantity is more than the change in price.
infinity - an infinite amount can be supplied at the given price: no change in price
price elasticity of supply
the responsiveness of quantity supplied to a change in the price of the product.
elastic supply
when the percentage change in quantity supplied is greater than the percentage change in price.
inelastic supply
when the percentage change in quantity supplied is less than the percentage change in price
price elasticity of supply for consumers
if the product consumers buy has inelastic supply, then they are likely to face high prices in order to obtain more.
if the product they buy has a very inelastic supply, then they may not be able to get more as the quantity is fixed. This can give rise to ticket touts when demand exceeds supply.
if the product they buy has an elastic supply then it is quite easy to purchase more.
price elasticity of supply for producers
firms would prefer an elastic supply as it is easier to respond to price changes.
more elastic supply enables a firm to be more flexible in what it offers consumers.
very inelastic supply means that the price will depend entirely on the demand.
can lead to losing control of the price to ticket tours
