supply (2.3)

Question 1

what is supply

Answer 1

the ability and willingness of a firm to provide goods and services at each price in a given time period

Question 2

what is the law of supply

Answer 2

for most products the quantity supplied varies directly with price

Question 3

how does the law of supply work

Answer 3

• higher profits are likely to be earned by existing firms if they supply more
• production costs are likely to increase if output/supply increases so therefore the price must also be increased to make up for the increased cost of production
• new firms may be attracted to the markets if prices are higher so they can make up for cost of production

Question 4

what is the difference between shifts and movements along the supply curve

Answer 4

shifts of- caused by non price factors

movements along- caused by price factors

Question 5

causes of shifts in the supply curve

Answer 5

• Cost of production: increased cost of production means less would be supplied
• taxes and subsidies: rise in VAT means rise in cost of production resulting in decrease of supply
• technology: better tech means reduced cost of production
• climate
• government regulations

Question 6

what is elastics supply

Answer 6

when the percentage change in quantity supplied is greater than the percentage change in price

Question 7

what is inelastic supply

Answer 7

when the percentage change in quantity supplied is less than the percentage change in price

Question 8

what is PES

Answer 8

the responsiveness of quantity supplied to a change in price of the product

Question 9

price inelastic value (supply)

Answer 9

if the value of PES is 0 or less than 1 eg. 0.5 then it is price inelastic

Question 10

price elastic value (supply)

Answer 10

if the value of PES is more than 1 eg. 2 then it is price elastic

Question 11

three PES values

Answer 11

PES=0 / PERFECTLY PRICE INELASTIC
PES= infinity /perfectly price elastic
PES=-1 /unitary price elastic