Supply Flashcards
Term 2, Year 10
What is the law of supply?
As price increases, quantity supplied also increases. As price falls, quantity supplied also falls.
What is market supply?
The sum of all individual firms’ supplies for a good.
What are the non-price determinants of supply?
- Cost of factors of production
- Changes in production technology
- Price of related goods
- Producer expectations
- Indirect taxes and subsidies
- Number of firms in the market
- Unpredictable events
Rightward and leftward shifts of the supply curve.
Rightward- increase in supply
Leftward- decrease in supply
Cost of factors of production
The firm buys various factors of production that it uses to produce its products.
Changes in production technology
New, improved technology lowers the costs of production , making production more profitable.
Price of related goods
Competitive supply- production of one of two or more products by a firm; goods compete for use of same resources.
Joint supply- production of goods that are derived from a single product; not possible to produce one without the other.
Producer expectations
Expects price to rise- firms withhold some current supply, to sell it at a higher price in future.
Expects price to fall- increase supply to take advantage of the current higher price.
Taxes
Firms treat taxes as a cost of production.
Subsidies
Payment made to a firm by the government. Opposite effect of tax.
Shocks
Sudden unpredictable events affecting supply, such as weather conditions.