Supply

Question 1

Supply?

Answer 1

The quantity of a product a producer is willing and able to supply onto the market at a given price in a given time period.

Question 2

What is the equation for total revenue?

Answer 2

Price of good/service multiplied by quantity sold

Question 3

what is the law of supply?

Answer 3

as prices of a product rise, producers expand supply to the market.

Question 4

what does a supply curve show?

Answer 4

relationship between price and how much a firm is willing and able to sell.

Question 5

why does the supply curve slop upwards?

Answer 5

1. the profit motive
   when market price rises following an increase in demand, it becomes more profitable for firms to increase output
2. production and costs
   when output expands, firms production costs rise so higher prices are needed to cover costs- effects of diminishing returns
3. new entrants into market
   higher prices may create incentive for other businesses to enter market= increase in total supply.

Question 6

what is market supply?

Answer 6

total supply brought to the market at each price

to calculate, add the individual supply schedules

Question 7

what shifts supply curve?

Answer 7

o P- Productivity. Higher productivity causes an outward shift in supply, because average costs for the firm fall.
o I- Indirect taxes. Inward shift in supply.
o N- Number of firms. The more firms there are, the larger the supply.
o T- Technology. More advanced the technology causes an outward shift in supply.
o S- Subsidies. Subsidies cause an outward shift in supply.
o W- Weather. This is particularly for agricultural produce. Favourable conditions will increase supply.
o C- Costs of production. If costs of production fall, the firm can afford to supply more. If costs rise, such as with higher wages, there will be an inward shift in
supply.

Question 8

what is competitive supply?

Answer 8

goods/services in competitive supply are alternative products that a business can make with its FOP

Question 9

what is price elasticity of supply?

Answer 9

PES measures relationship between change in quantity supplied and a change in market price.

The price elasticity of supply is the responsiveness of a change in supply to a change in price. T

Question 10

elastic supply and producers

Answer 10

PES is greater than 1

producers can increase output without rise in cost or or a time delay.

Question 11

inelastic supply and producers

Answer 11

PES is less than 1

firms find it hard to change production in a given time period.

Question 12

what is joint supply?

Answer 12

This is when increasing the supply of one good causes an increase or decrease in the supply of another good. For example, producing more lamb will increase the supply of wool.

Question 13

perfectly inelastic supply

Answer 13

A perfectly inelastic supply has PES = 0. Supply is fixed, so if there is a change in demand, it cannot be met easily.

Question 14

perfectly elastic supply

Answer 14

Supply is perfectly elastic when PES = infinity. Any quantity demanded can be met without changing price

Question 15

what are factors that affect PES?

Answer 15

time scale 
spare capacity
level of stocks 
how substitutable factors are
barriers to entry to the market

Question 16

how does time scale effect pes?

Answer 16

In the short run, supply is more price inelastic, because producers cannot quickly increase supply. In the long run, supply becomes more price elastic. The short run is the period of time in which at least one factor of production is fixed. The long run is the period of time in which all factors of production are variable.

Question 17

how does spare capacity effect PES

Answer 17

If the firm is operating at full capacity, there is no space left to increase supply. If there are spare resources, for example in a recession there are lots of spare and unemployed resources, supply can be increased quickly.

Question 18

how does level of stocks effect pes

Answer 18

If goods can be stored, such as CDs, firms can stock them and increase market supply easily. If the goods are perishable, such as apples, firms cannot stock them for long so supply is more inelastic.

Question 19

how does how substitutable factors are effect PES

Answer 19

If labour and capital are mobile, supply is more price elastic because resources can be allocated to where extra supply is needed. For example, if workers have transferable skills, they can be reallocated to produce a different good and increase the supply of it.

Question 20

how does barriers to entry to market effect PES?

Answer 20

Higher barriers to entry means supply is more price inelastic, because it is difficult for new firms to enter and supply the market