Supply & Demand Flashcards
Factors affecting Supply
Changes in production
Taxes and Subsidies
Changes in use of technology
Number of firms
How does change in production costs
Increase in production cost would lead to a decrease in supply as it would be less profitable to produce the same amount of quantity when the price is higher and vice versa.
Or the firm may be likely to increase the price of the product shifting the cost onto the consumers
How do Taxes and Subsidies affect supply
An increase in government tax on goods and services will increase the cost shifting supply curve left (decreasing supply)
Subsidy encourages the firm to increase supply of a certain good or service by lending grants, which reduces cost of production shifting supply curve right
How does change in technology affect supply
New technology reduces costs by increasing productive efficiency therefore it shifts supply curve to the right
How does the number of firms operating in the market affect supply
Greater the number of firms, the greater the level of supply, supply curve shift to the right
equilibrium price or market
The point/price at which buyers and sellers agree
Sellers Market
Demand > Supply
Excess demand, upwards pressure on price
Buyers Market
Supply > Demand
Excess supply, downwards pressure on price
Assume an increase in price of Samsung smartphones how does this affect the iPhone market
Demand curve shifts to right as there is an increase in demand due to Samsung and Apple being close substitutes
Due to the increase in the demand this causes excess demand, this causes an upwards pressure on price where price is re-established at a higher price
This causes a movement along the supply curve (expansion) as supply has increased
Assume an increase in labour costs at Apple how does this affect the iPhone market
Increase in labour costs increases production cost hence, supply curve shifts to the left.
This causes an excess in demand as there is not enough supply at the demand, which leads to an upwards pressure on price and equilibrium is re-established at a higher price
Decrease in supply leads to a increase in price hence, a decrease in quantity demanded so there is a movement along the demand curve (contraction)
What’s a market
Where buyers and sellers agree to a price
Range of markets
Commodities - raw materials e.g. rubber and oil
Financial markets - stocks, shares, currencies
Good markets - the supply and demand of goods and services in general e.g. food, clothing, leisure
Factor markets - the supply and demand of factors of production e.g. land, labour and capital
Demand
The quantity of a good/service that a consumer is willing to buy at a certain price
Supply
The amount of good/service a firm is willing to produce at a certain price
