Microeconomics - L7 Law of Supply Flashcards
Define ‘Supply’
Supply is the ability and willingness of producers to supply into a market.
What does the law of supply state?
The law of supply states that:
As the price increases, the quantity supplied increases
As the price decreases, the quantity supplied decreases
List the 4 supply non-price factors that influence price and quantity
- Cost of production
- Technological change
- Productivity growth
- Climatic conditions
What does cost of production mean?
Include an example.
The cost involved in producing a good or service.
Eg. Wages, rent, raw materials, electricity
What would happen to supply if:
a. Cost of production (eg. wages) were to increase?
b. Cost of production (eg. wages) were to decrease?
a. Supply would decrease because producers would not be able to produce the same quantity due to the increase in costs as well as retain their profit margin.
b. Supply would increase because producers could afford to produce and supply more due to the decrease in costs as well as retain or possibly increase their profit margin.
What are technological changes?
Technological changes include any advancement in technology that makes it more efficient and therefore cheaper to produce an item.
Eg. improved wifi speed, artificial intelligence, robotics
What would happen to supply if:
a. A manufacturing business started using robots to assist with production in their factory?
b. A real estate agency started using Chat GPT (Artificial Intelligence) to write the copy for their property advertisements?
a. Supply would increase because the items could be produced in a more efficient manner, allowing more items to be produced.
b. Supply would increase because this would save time and resources and allow the real estate salespeople to focus their time on assisting clients and making sales.
What is productivity growth?
Productivity is the level of output from any given level of inputs. Therefore, productivity growth means that the level of outputs has grown or improved from the same level of inputs and production has become more efficient.
What would happen to supply if:
a. Workers became more productive because they were more focussed at work and spent less time talking?
b. Workers became less productive because they were less focussed at work and spent more time talking?
a. Supply would increase as workers are more focussed and therefore more productive and able to produce more output from any given level of inputs.
b. Supply would decrease as workers are less focussed and therefore less productive and as a consequence, produce less output from any given level of inputs.
What are climatic conditions?
Climatic conditions are environmental factors that can impact producers ability to produce.
Eg. Climate change, bushfires, floods.
What would happen to supply if:
a. Floods in Queensland wiped out banana plantations?
b. A bushfire destroyed hundreds of acres of wheat crops?
c. Climate change resulting in coral bleaching completely destroyed the Great Barrier Reef?
a. Banana producers would be unable to supply bananas to the market despite their willingness as they no longer have the ability to supply.
b. The supply of wheat to the market would reduce as farmers no longer have the ability to supply wheat due to destruction of their crops.
c. The ability to supply tourism services in the Whitsundays would be prevented (eg. Day tours on boats out to the GBR) as many tourists would no longer be able to visit and enjoy what the Great Barrier Reef has to offer.
