Supply and Supply Elasticity Flashcards
Supply
The quantity of goods/services that a producer is willing and able to supply at each price
Law of supply
As the price decreases, the quantity supplied will decrease
What does a movement along the supply curve mean?
A change in quantity supplied
What does a shift of the supply curve mean?
A determinant of supply has changed and so there is an increase or decrease of supply
What are the 5 determinants of supply?
GI T W C RG
Cost of factors of production, price of related goods, government intervention, changes in technology, weather/natural disasters
Cost of production
As cost of production increases, firms will supply less goods at each price so supply curve shifts to left
Price of related goods competitive supply
Goods are in competitive supply when producer can produce more than one product with available resources eg skis and snowboards
Price of related goods joint supply
Goods are in joint supply if creating more of one leads to creating more of another ie wheat grain and straw
Government intervention indirect taxes
Taxes on goods and services based of expenditure eg GST.
Government intervention subsidies
The government pays producers to reduce the price of good
Changes in technology
Improvement in technology reduces the cost of production for goods.
Weather or natural disasters
Impact production of goods especially primary goods so supply decreases (shift to left)
What is the market supply of a good?
Found by summing up all of the individual producers supply at each price
Price elasticity of supply
The responsiveness of a firms willingness and ability to change the quantity supplied due to a change in price
What are the two extremes of price elasticity of supply?
PES = 0 (supply is fixed so any change in price results in no change of Qs), PES=infinite (perfectly elastic, at the price set, supply is unlimited)
What happens when elasticity of supply is over 1?
Elastic, change in price causes a more than proportionate change in Qs
What happens when ES = 1
Unitary elasticity
What happens when ES is smaller than 1
Inelastic
What are the 3 determinants of price elasticity of supply?
CT-STORE
How much costs rise when more is produced, time and ability to store stocks of goods
How much costs rise when more is produced
If costs rise rapidly when more is produced, then will only supply more in large increase in price.
Cost of production may not rise much further if the firm has
Unused capacity and mobile factors of production
Time
The longer the amount of time, the more elastic the good will be
Ability to store stocks of good
If you can store stocks of the good, then can easily supply more goods if price increases
