Supply Flashcards
What is supply
Quantity of goods and services that suppliers are willing and able to supply at different price levels
What are the four sectors of economy
- Primary: extraction of raw materials (mining, farming)
- Secondary: transformation of raw materials into products (factories, wine cellars)
- Tertiary: buying and selling of products (transport, insurance, banking)
- Service: renders a service and is not involved in production of a physical product (Health services, education services, security services, cultural services)
What are the two factors affecting the supply of any product to the market
- Cost to produce good or service
- Selling price of good or service
What does the law of supply state
There is a direct relationship between price and quantity supplied
Why is there a direct relationship for the law of supply?
This is because an increase in price gives incentive to producers to produce more because they want to make more profit
What are the five shifters of supply
- Price of resources - i.e resources are expensive so firms produce less
- Number of producers - i.e if there are more producers, the good will be supplied more
- Technology - causes supply of good to increase
- Taxes and subsidies - taxes causes supply to decrease since the producers don’t have money to produce enough stuff; subsidies cause the supply curve to shift to the right as the government gives money to produce more output
- Expectations - if a producer thinks they can make more profit later, they will hold back supply now and supply more later on
What happens to the supply of a product when price increases
The supply stays the same but the quantity supplied increases
What is a surplus
Well quantity supplied is greater than the quantity demanded
What is a shortage
When the quantity demanded is greater than the quantity supplied
