Nature of supply Flashcards
Define supply.
quantity of good or service that producers are willing and able to sell at any given price in a given period
Define firm.
an organisation that brings together factors of production to produce output
Define competitive market.
a market in which individual firms cannot influence the price of a good or service they are selling, due to competition from others
What does a supply curve show?
quantity supplied at any given price
What would cause a movement down the supply curve?
market price reduction
Name the five main influences on the position of the supply curve.
- production costs
- taxes and subsidies
- price of related goods
- firm expectations about future prices
- number of firms operating in the market
What would be effect on supply curve of an increase in VAT and why?
shift to left, as for a given market price the supplier will receive less
What would be the effect on the supply curve of an increase in costs?
shift to left
What would be the effect on the supply curve of the introduction of a subsidy to suppliers and why?
shift to right, as is equivalent to reduction in costs
Why might an increase in the price of a related good affect the supply curve?
- if it can be produced using same factors of production then more profitable for supplier to change to supplying the related good, or
- if it’s a by-product of same production process (eg wool and mutton) so producer will produce more of both
If higher price expected in future, what might this do to supply?
supply reduces, as firms choose to hold some stock back to sell in future
Define cartel.
an agreement between firms
in market on price and output
with intention of maximising joint profits
What does price elasticity of supply measure?
sensitity of quantity of a good or service supplied to a change in price of that good or service
What’s the formula for price elasticity of supply?
PES = % change in quantity supplied
/ % change in price
What values can PES take if supply is price elastic?
PES > 1
What values can PES take if supply is price inelastic?
PES < 1
If a firm has large stockpiles of a good, is it likely to be price elastic or inelastic?
elastic
If a firm is running below full capacity, is it likely to be price elastic or inelastic?
elastic
Is supply more elastic in the short or long run?
long run
Define short run.
period in which at least one factor of production is fixed in supply
Define short run.
period in which all factors of production are flexible in supply
Define perfectly inelastic supply.
when firms can only supply a fixed quantity
What value does PES have when supply is perfectly inelastic?
zero
What value does PES have when supply is perfectly elastic?
infinity
