supply

Question 1

what is supply

Answer 1

the quantity that firms are willing and able to produce in a given time at a given price

Question 2

what is the law of supply

Answer 2

as prices rise, supply rises because less efficient firms can enter and firms are incentivised by profits

Question 3

individual v market supply

Answer 3

individual supply is the amount that a single firm supplies but market supply is the output produced by all firms (summed together)

Question 4

what is joint supply

Answer 4

joint supply is when an increase or decrease in supply of one good leads to an increase or decrease in supply of its byproduct e.g. beef and leather

Question 5

what are the movements along the supply curve

Answer 5

a contraction in supply occurs when the prices fall so supply falls and an extension happens when prices rise so supply rises

Question 6

what is ceteris parabus in terms of supply

Answer 6

when all other factors than price remain constant e.g. costs of production, supply increases with prices

Question 7

conditions of supply

Answer 7

costs of production, joint supply, amount of firms in market, technology advancements, changes to labour productivity, indirect taxes and subsidies, speculation, regulation bureaucracy

Question 8

what is price elasticity of supply

Answer 8

measures the responsiveness of supply to a change in price

Question 9

formula for pes

Answer 9

% change in Qs/ % change in price

Question 10

inelastic supply

Answer 10

a change in price leads to a less than proportional change in supply, pes of between 0 and 1, e.g. petrol. steep upwards slope

Question 11

elastic supply

Answer 11

a change in price leads to a greater than proportional change in supply, pes is above 1, e.g designer clothing. flat upwards slope

Question 12

factors affecting pes

Answer 12

time needed to extract and find, time of year, stockpiling/perishability, availability of spare capacity, ease of switching production processes

Question 13

what is the price equilibrium

Answer 13

the price at which demand is equal to supply, there is no tendency for change

Question 14

what is price disequilibrium

Answer 14

any other price, there is likely to be a further change or reaction from producers

Question 15

what happens to change the price equilibrium

Answer 15

when demand or supply shifts left or right and there is no response from the other. for example if demand increases, in the short run supply will be inelastic and cant respond which will cause an upwards pressure on price and raise the equilibrium from p to p1

Question 16

what are the functions of price- when price increases

Answer 16

consumers ration
producers are incentivised
entrepreneurs are signalled

Question 17

what is consumer surplus

Answer 17

the welfare gained from consumption of a good. the difference between how much consumers are willing and able to pay compared to what they actually pay

Question 18

what is producer surplus

Answer 18

the welfare gained from producing, the difference between what the producers are willing and able to supply for vs what they actually charge

Question 19

what do each of these look like