Supply Flashcards
What’s a supply schedule?
shows how much of a good or service would be supplied at different prices
What’s a supply curve?
shows the quantity supplied at various prices
What’s the quantity supplied?
quantity that producers are willing and able to sell at a particular price of that good/ service
Factors that shift the supply curve
1) input prices
2) technology
3) the prices of related goods or services
4) expectations
5) the number of producers
Describe changes on input prices
increase in the price of an input makes the production more costly for sellers
-> supply decreases
a fall in the price of an input makes the production less costly for sellers
-> supply increases
Describe changes in technology
new better technology enables producers to spend less on inputs yet still producing the same amount of output
-> lowers costs and increases supply
Describe changes in the price of related goods or services- complement
an increase in the price of one complement good causes an increase in the supply of the other
Describe the changes in the price of related goods or services- substitute
an increase in the price of one substitute good will encourage the increase in supply of that substitute good, which can cause a decrease in its supply
Describe changes in expectations
the expectation of a higher price for a good in the future decrease current supply of the good- if sellers can store the good
- sellers will change their current offerings on anticipation of the direction of future prices on order to obtain the highest possible price
Describe changes in number of producers
entry implies more sellers in the market
-> increasing supply
exit implies fewer sellers in the market
-> decreasing supply
Describe the market supply curve
the horizontal sum of the individual supply curves of all producers
Describe market equilibrium
when Qs=Qd at a certain price
-> the amount consumers would purchase at this price is matched exactly by the amount producers wish to sell
Define equilibrium price (aka market clearing price)
the price at which consumer would purchase is matched exactly by the amount producers wish to sell
Describe equilibrium quantity
the quantity of the good or service bought and sold at that price is the equilibrium quantity
What happens if the price is above the equilibrium level?
creates a surplus which will push the price down until it reaches the equilibrium price
Why does the market price fall if it’s above the equilibrium price?
there’s a surplus of a good when the quantity supplies exceeds the quantity demanded. Surplices occur when the price is above its equilibrium level
surpluses don’t last- sellers will reduce price so they move goods off the shelves
What happens when there’s a decrease in supply on the supply curve?
creates a shortage at that price
movement along the demand curve to a higher equilibrium price and lower equilibrium quantity
What happens if supply and demand both increase
quantity increases, but price change is ambiguous
What happens if supply increases and demand decreases
price decrease but quantity change is ambiguous
What happens if supply decreases and demand increases?
price increases but quantity change is ambiguous
What happens if supply decreases and demand decreases?
quantity decreases, but price change is ambiguous
What happens if the decrease in demand is relatively larger than the decrease is supply?
What happens if the decrease in supply is large relative to the decrease in demand?
the equilibrium quantity and price fall
the equilibrium prices rises
What happens if the increase in demand is relatively larger than the increase in supply?
What happens if the increase in supply is large relative to the increase in demand?
The equilibrium quantity and price rise
The equilibrium quantity rises, equilibrium price falls
