Supply Flashcards
What is the definition of supply?
Supply is the quantity of goods and services that firms are willing to sell at, at a given price over a given period of time.
What causes movements along a supply curve?
If price rises- it becomes more profitable for producers to supply so they have an incentive to increase production. Therefore a rise in price causes an increase in quantity supplied ( extension in supply)
If price decreases- becomes less profitable to supply a product and so firms will reduce output and might exit the market. A fall in price causes a decrease in quantity supplied ( contraction in supply)
What causes a shift in the supply curve?
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Productivity - labour productivity refers to output per worker per hour worked. rise in productivity leads to costs of production decreasing then whole supply curve shifts to the right
Indirect taxes- indirect taxes raise cost of supply so supply curve shifts to left. Increases cost of production
No of firms- more firms that enter the market more supply.
Technology- new technology leads to rise in productivity, as it reduces cost of production . Supply curve shifts to right
Subsidies- reduction in price to supply so causes supply curve to shift left.
Weather- good weather means more supply. Supply curve shifts to right.
Costs of production- could be transport, labour, oil, raw materials. Rise in costs of production decrease supply
What is the price elasticity of supply?
Measures the responsiveness of quantity supplied given a change in price.
What are the factors affecting PES?
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Production lag- the longer the production lag the more price inelastic.
Stocks- if stocks are available then supply will be elastic because manufacturers will respond quickly to a price change.
Spare capacity- more spare capacity more price elastic.
Substitutability of factors of production- more sun suitable factors of production are easier to respond by increasing production, more price elastic. For example, if a business has cars and vans, if vans are in more high demand if factors of production are sub suitable they can move workers to work on vans.
Time- gives firms opportunity to expand or reduce production. Greater the time period more price elasrtic supply is. Short run price is inelastic as it means there is at least one fixed factor of production.
