Paper 1- Theme 1.2 Market ✅ Flashcards
define supply
the amount of goods or services a producer is willing and able to supply to the market at a given price
axis of supply curve
x axis- quantity
y axis- price
why does the supply curve have a positive gradient
the higher the selling price, the more the business will want to supply
what is the only factor that moves supply along the curve
price
- low price, less profits, business discouraged to supply, moves down curve
- high price, high profits, business encouraged to supply, moves up curve
define factors that cause a shift of curve to left or right
shift left if…
shift right if…
Determinants of supply = any factor other than price
- shift left if…. only willing to supply same quantity at higher price
- shift right if…. willing to supply same quantity at lower price
factors causing a shift in supply curve
• changing costs of production
- higher, shift to the left
- lower, shift to the right (willing to supply more at lower price)
• introduction of new technology
- innovative capital intensive methods reduce costs
- shift to the right
• indiect taxes- taxes on goods and services (e.g. VAT)
- indirect taxes rise
- (increases cost if production)
- will want to supply less at given price, shift to left
• government subsidies- government provides sum of capital to business to reduce its costs of production
- increase subsidises, reduce costs, willing to supply more at given price, shift right
• external shocks- unexpected events that have an effect on the direction of the economy
- usually increase costs of supplies to manufacturers e.g. (due to shortages of supply), willing to supply less at given price (to maintain profit margins), shift to left
define indirect taxes
duty paid on goods and services
- increases a firms costs of production (have to pay duty on supplies)
e.g. Value added tax on electricity on electricity and gas bills
define government subsidies
government provided sums of capital to business to reduce its costs of production
1.2.1 demand
not in advanced info
x axis
y axis
of demand curve
x axis = quantity demanded
y axis = price
not in advanced info
each point on the demand curve represents
the amount of goods that customers are willing and able to buy at a given price
not in advanced info
what is the only factor that moves demand along the curve
price
- low price, higher demand
- higher price, lower demand
not in advanced info
shift of demand curve to the left =
decrease in demand at given price
not in advanced info
shift of demand curve to the right =
increase in demand at given price
not in advanced info
factors leading to a shift in demand curve
• changes in price of substitute goods (two alternative goods that are used for the same purpose)
- if price of substitute falls, demand for substitute increases, shift to left in demand curve of x product
• changes in price of complementary goods (goods that are often bought and used together)
- if price of petrol falls, demand for petrol will rise, shift to right in cars demand curve
• changes in consumer incomes
- less disposable income, less demand
• fashion, tastes and preferences change
- if become more fashionable, demand increases
- demographic trends - ageing population reduces demand of video games
- advertising and branding - heavy spending on advertising increases demand
• external shocks - e.g. recession or natural disaster - reduce disposable income
- shift curve to left
• seasonality- some goods face demand changes based on time of year
- in summer, shift to right in ice cream demand curve
