Supply Flashcards
What is supply?
It is the willingness and ability of a producer to sell goods and services at a given price, while other factors remain constant.
Describe the law of supply.
Higher the price, the higher the quantity supplied. Lower the price, lower the quantity supplied .
What’s the supply equation?
QS = A + BP A = The maximum quantity supplied at the price of 0 B = The shape of the supply curve = ^ QS / ^ P P = Price
What are the factors affecting supply?
- Price of the product itself
- Costs of production
- State of technology
- Number of producers
- Government laws
- Imposition of indirect taxes
- Subsidy
- Natural disasters ; covid 19
What are the different types of taxes?
Indirect taxes = Specific tax , Advalorem Tax
Describe specific tax.
The tax varies with volume and not value. it is fixed for each unit of production.
Describe Advalorem Tax.
It varies with value and not volume. The greater the value the greater the tax.
How to illustrate a supply curve showing the impact of Specific tax?
A parallel shift of the supply curve to the left.
How to illustrate a supply curve showing the impact of an advalorem tax?
A movement of the supply curve to the left, where the curves meet at the start and widen towards the end.
How to illustarte the effect of a subsidy using a supply curve?
A movement towards the right of the supply curve.
What is market supply?
The market supply is the aggregation of all individual supply curves.
What causes a rightward shift of the supply curve?
A change in all other factors affecting supply excluding price. Such as an advancement in technology, Lower cost of production, and removal of an indirect tax.
Describe the concept of competitive supply.
A producer allocates more resources to a product by reducing resources that have been allocated to another.
This can be illustrated by showing an increase in supply for one product causing a rightward shift and a decrease in supply for another casuing a leftward shift.
Describe the concept of joint supply.
This occurs when two products are supplied together, which means that when supply increases for one it will also increase supply for another. Two products will have a supply curve showing a rightward shift.
