Supply Flashcards
What is supply?
Refers to how much is supplied at each price over a certain period of time
What is the shape of the supply curve?
Upwards sloping from left to right, indicating that more will be supplied as price increases.
What causes movement along the supply curve?
Price changes. Because the curve has a positive slope, a rise in price will cause a rise in QS and a fall in price will cause a fall in QS
What causes shifts in the supply curve?
Cost of production
Productivity of workforce
Indirect taxes
Subsidies
Technology
Discoveries of new reserves of raw material
What is Price Elasticity of Supply?
Is the sensitivity of supply of a product to change in its price
What is the formula of PES?
Percentage change in QS / Percantage change in price
How to interpret results of PES?
PES always has a positive value because price and quantity move in the same direction, since the supply curve is upward sloping
When is supply price inelastic?
When the value of PES is between 0 and 1
When is supply price elastic?
When the value of PES is greater than 1
When is supply unit elastic?
When the value of PES is equal to 1
When is supply perfectly price inelastic?
When the value of PES is 0
When is supply perfectly price elastic?
When the value of PES is infinity
What are the factors that influence price elasticity of supply?
Time
Stocks
Spare capacity
Availability and cost of switching resources from one use to another
