Supply Flashcards
What is supply?
Supply is the willingness and ability to supply goods.
At higher prices, more of the good will be available to buyers as the suppliers will be able to maintain a profit despite the higher costs of production that may result from the short-term expansion from their capacity (as the good will be sold for high).
When goods produced are less than the demand, manafacturers will raise both of the supply of their product and it’s price, causing increasing manufacturing costs.
This price change increases the desired rate of production.
What is the Law of Supply?
Seller behaviour in the market is summarised as the law of supply - that is, ceteris parabus, the quantity supplied (S) or sold expands at the price rises and contracts as the price falls.
In contrast to buyers, sellers want to produce or supply at a high price rather than a low price as it is more profitable to do so.
How does the price of the good affect supply?
First factor affecting supply is the price of the good. The basic supply relationship is between the price of a good and the quantity supplied. The relationship is positive, meaning that an increase price in price will induce an increase in the quantity supplied.
How does the price of related goods affect supply?
Prices of related goods affect supply. Related goods refers to goods which inputs are derived to be used in the production of the primary good. A related good may also be a good that can be produced within the firm’s existing factors of production.
For example, suppose a firm producers leather belts and they learn that leather pouches are more profitable to make. The firm might reduce its production of belts and begin production of leather pouches.
How does conditions of production affect supply?
State of technology can affect supply. If there is a technological advancement in one good’s production, supply increases.
For instance, for agricultural goods, weather is crucial for it to affect production outputs.
How do expectations affect supply?
Sellers’ concern for future market conditions can directly affect supply.
For example, if the seller believes demand for his product will sharply increase in the foreseeable future, the firm owner may immediately increase production in anticipation of future price increases.
How can price of inputs affect supply?
Inputs include land, labour, energy and raw materials. If the price of inputs increases, the supply curve will shift left as sellers are less willing or able to sell goods at any given price.
How do the number of suppliers affect supply?
A change in the number of sellers in an industry changes the quantity available at each price and thus changes supply. An increase in the number of sellers supplying a good or service shifts the supply curve to the right; a reduction in the number of sellers shifts the supply curve to the left.
More producers of supplied goods.
How do government policies and regulations affect supply?
Government intervention can take many forms including environmental and health regulations, hour and wage laws, taxes, electrical and natural gas rates and zoning and land use regulations.
What are all the factors that affect supply?
- The Good’s Own Price
- The Price of Related Goods
- Conditions of production
- Expectations
- Price of inputs
- Number of Suppliers
- Government policies and regulations
