Supply Flashcards
Supply
The supply of an individual firm indicates the various quantities of goods
(or service) a firm is willing and able to produce and supply to the market
for sale at different possible prices, during a particular time period,
ceteris paribus
Law of supply
There is a positive relationship between the quantity of a good supplied over
a particular time period and its price, ceteris paribus: as the price of good
increases, the quantity of the good supplied also increases (and vice versa)
Market supply
Market supply is the sum of all individual firm’s supplies for a good. The
market supply curve illustrates the law of supply, shown by the positive
relationship between price and quantity supplied
The law of diminishing marginal returns
The law of diminishing marginal returns
As more and more units of a variable input (such as labour) are added to one or
more fixed inputs (such as land), the marginal product of the variable input at first
increases, but there comes a point when it begins to decrease. This relationship
presupposes that the fixed input(s) remain fixed, and that the technology of
production is also fixed
Increasing marginal cost
When marginal product increases, marginal cost decreases; when marginal product
is maximum, marginal cost is minimum; and when marginal product falls, marginal
cost increased
A movement along the supply curve is caused by what?
Caused by a change in price, is called a “change in quantity supplied”
A shift of the supply curve is caused by what?
Caused by a change in determinant of supply is called a “change in supply”
Non price determinants of supply
Cost of factors of production, technology, price of related goods, and producer (firm) price expectations, taxes (indirect or on profit), subsidies, No. of firms, shocks/sudden unpredictable events
How does new technology affect cost of production
Lower costs means increased supply
Competitive supply
The two goods compete with each other for the same resources
- A fall in the price of good A results in an increase in supply of good B
Joint supply
- The two or more goods are derived from a single product, so that it is not
possible to produce more of one without producing more of the other - An increase in the price of good A results in an increase in supply of good B
Producer firm expectations effect on supply
- Expect price ↑, supply ↓
Taxes effect on supply
- Tax ↑, cost of production ↑, supply ↓
Subsidies effect on supply
Subsidy ↑, cost of production ↓ , supply ↑
No. Of firm affect on supply
- No. firms ↑, supply ↑
