Supply Flashcards
What is supply
Supply is the quantity of a good or service that a producer is willing and able to supply
What does the basic supply law state
As demand rises, price of a product rises so should businesses supply to the market
What are the 3 reasons for the supply law
The profit motive
Production and costs
New entrant coming into the market
What is the profit motive
If market prices increase it becomes more profitable for businesses to increase output
What does diminishing returns apply to
As production expands a firms costs may increase meaning a higher price is necessary to cover these costs
What causes shifts in the market supply curve
Changes in the unit cost of production
A fall in the exchange rate
Advances is production technology
The entry of new producers
What is joint supply
Where an increase or decrease in the supply of one good leads to and increase or decrease in the supply of a by product
What does price elasticity of supply measure
Okay he relationship between change in quantity and a change in price
What does it mean if supply is elastic
Producers can increase their output without a rise in cost or a time delay
What does it mean if supply is inelastic
Firms find it hard to change their production in a given time period
What is the formula for price elasticity of supply
Percentage change in quantity supplied divided by percentage change in price
Name some factors effecting price elasticity of supply
Spare production capacity
Stocks of finished products and components
Ease and cost of factor substitution/mobility
Time period and production speed
