Supply Flashcards
How does change in price affect supply?
movement along the supply curve
how does favourable conditions for supply like lower costs, better tech, subsidies, more firms affect supply?
rightward shift due to increased supply
how does unfavourable conditions like higher costs, taxes, supply shocks, fewer firms affect supply?
leftward shift due to decreased supply
What is the law of supply?
There is a direct relationship between price and quantity supplied. As price increases, quantity supplied increases; as price decreases, quantity supplied decreases.
Expansion of supply
When price increases, firms are incentivised to produce more, leading to an upward movement along the supply curve.
Contraction of supply
When price decreases, firms reduce production, leading to a downward movement along the supply curve.
what does price elasticity of supply measure?
the responsiveness of quantity supplied to a change in price. It indicates how quickly and effectively producers can respond to changes in market prices.
if PES is high
supply is responsive to price changes
if PES is low
supply is unresponsive to price changes
PES formula
PES= %change in QS/ %change in P
How does the short run affect supply?
supply is more inelastic- firms cannot quickly adjust production
How does the long run affect supply?
supply is more elastic- firms have time to expand.
