Supply Flashcards
1
Q
Supply of Goods or Services is Different at Different Prices
A
- Supply is the quantity of a good or service that producers supply to the market at a given price, at a particular time.
- A supply curve shows the relationship between price and quantity supplied. At any given point along the curve it shows the quantity of the good or service that would be supplied at a particular price.
- Here’s an example of a supply curve:
* LOOK IN TEXTBOOK FOR DIAGRAM* - Supply curves usually slope upwards. This means that the higher the price charged for a good, the higher the quantity supplied - as shown in diagram in textbook
- Producers and sellers aim to maximise their profits. Other things being equal, the higher the price for a good or service the higher the profit. Higher profit provides an incentive to expand production and increase supply, which explains why quantity supplied of a good/service increases as price increases.
- However, increasing supply increases costs. Firms will only produce more if the price increases by more than costs.
- Increased prices mean that it will become profitable for marginal firms (these are firms just breaking even) to supply the market - increasing market supply levels.
2
Q
Changes in supply cause a shift in the supply curve
A
- A supply curve moves to the left when there’s a decrease in the amount supplied at every price
- A supply curve shifts to the right when there’s an increase in the amount supplied at every price.
* LOOK AT DIAGRAM IN BOOK *
3
Q
There are lots of factors that can cause a shift in the supply curve
A
- Changes in the costs of production
- An increase in one or more of the costs of production will decrease producers’ profits and cause the supply curve to shift to the left. If a cost of production decreased, the supply curve would shift to the right. E.g. an increase in the cost of cocoa will => a reduction in the supply of chocolate, but a decrease in the cost of packaging will lead to an increase in supply. - Improvements in technology
- Technological improvements can increase supply as they reduce the costs of production. E.g. improvements in the energy efficiency of commercial freezers could reduce the energy costs of a food company - Changes to the productivity of factors of production
- Increased productivity of a factor of production means that a company will get more output from a unit of the factor. E.g. more productive staff will lead to an increase in output and shift the supply curve to the right. - Indirect taxes and subsidies
- An indirect tax on a good effectively increases costs for a producer - this means that the supply is reduced and the supply curve is shifted to the left. A subsidy on a good encourages its production as it acts to reduce costs for producers - this => an increased level of supply and the supply curve shifts right. - Changes to the price of other goods
- If the price of one product (A) made by a firm increases, then a firm may switch production from a less profitable one (B) to increase production of A and make the most of the higher price that they can get for it. This decreases the supply of product B - Number of suppliers
- An increase in the number of suppliers in a market will increase supply to the market, shifting the supply curve to the right. A decrease in the number of suppliers will shift the curve to the left
4
Q
Joint Supply is when Goods or Services are supplied together
A
- Joint supply is where the production of one good or service involves the production of another - its another example of when markets are interrelated. E.g. if Crude Oil is refined to make petrol this will also increase the supply of butane (another product that’s made as a result of this process).
- If the price of a product increases, then supply of it and any joint products will also increase. E.g. if the price of of petrol increases, the level of drilling for oil will rise and the supply of petrol and its joint products will increase.
