Supply Flashcards
What is supply?
The quantity of a good that sellers are wiling and able to sell at any given price in any given time period
Law of supply
As the price of a good rises, the quantity demanded will increase
What does a supply curve show?
The quantity of a good that firms are willing and able to sell
What relationship doe the supply curve have?
Positive relationship
Price + quantity supplied
Slopes upwards
Movement up the supply curve
Extension of supply
(Caused by increase in price)
Movement down the supply curve
Contraction of supply
(Caused by decrease in price)
What causes the supply curve to shift
Changes in determinants of supply
Shifts right = increase in supply
Shifts left = Decrease in supply
(1) Determinant of supply
Increase in cost of production shifts the curve left
Improved tech reduces COP and increases productivity
What is productivity?
The output per unit of labour/capital
How does government intervention affect the supply curve
Taxes shifts the supply curve left
Subsidies shift it right
Legislation or regulation shifts it either way
(2) Determinant of Supply
Price of related goods
Competitive supply –> rise in price of an alternative good –> shifts supply curve of current good to the left
Goods in joint supply –> rise in price will shift supply of by-product to the right
What is an alternative good?
Goods in a competitive supply
A good which a firm can make with its resources as an alternative
Example of COP affecting supply
Firms pay higher wages to workers ==> Relative unit cost increases ==> COP rises so supply curve shifts left
What are relative unit labour costs?
Wages/productivity
What is producer surplus?
Difference between the market price seller receives for a good and the price they would be willing to accept
