supply - law of supplu Flashcards
what is supply
Supply is the willingness and ability of firms to produce a quantity of a good/service.
‘Supply Schedule’ Data where the supply curve can be drawn from
Firms must have willingness, ability (Capacity) to supply.
what is the supply schedule
‘Supply Schedule’ Data where the supply curve can be drawn from.
what is the law of supply
“As the price of a product rises, the quantity supplied of the product will usually increase, ceteris paribus”
why does the supply curve slope upward
Supply Curve slopes upwards due to:
Profit
More firms incentivised to join market
there is a Direct & Causal Relationship between price and quantity with supply.
why is there a movement on the supply curve
If the price is impacted there will be a movement along the supply curve.
Extension or a Contraction (price is already on the axis)
A change in a factor other than price will shift the supply curve left or right.
what does an increase in supply do to the curve
An increase in supply due to a non-price determinant will see the supply curve shift rightwards. (Outward)
(non price determinant of supply)
what is joint supply
When two or more products are derived from a single source.
Increasing production of one will lead to increased production of the other.
what is competitve supply
When a firm produces multiple goods that use the same resources there is competition.
Increasing production of one, decreases the other.
E.g. A farmer has limited land so increasing production of wheat, will mean sacrificing some corn.
non determinants of supply
explain production costs
factors of production (land, labour, capital entrepreneurship) that it uses to produce its product.
Prices of factors of production (such as wages, which are the price of labour) are important in determining the firm’s costs of production.
If a factor price rises, production costs increase, production becomes less profitable and the firm produces less; the supply curve shifts to the left.
If a factor price falls, costs of production fall, production becomes more profitable and the firm produces more; the supply curve shifts to the right
non determinants of supply
explain indirect taxes and subsidies
Firms treat taxes as if they were costs of production.
Therefore, the imposition of a new tax or the increase of an existing tax represents an increase in production costs, so supply will fall and the supply curve shifts to the left. The elimination of a tax or a decrease in an existing tax represents a fall in production costs; supply increases and the supply curve shifts to the right.
A subsidy is a payment made to the firm by the government, and so has the opposite effect of a tax. (Subsidies may be given in order to increase the incomes of producers or to encourage an increase in the production of the good produced.) The introduction of a subsidy or an increase in an existing subsidy is equivalent to a fall in production costs, and gives rise to a rightward shift in the supply curve, while the elimination of a subsidy or a decrease in a subsidy leads to a leftward shift in the supply curve
non price determinant of supply
- technology
A new improved technology lowers
costs of production, thus making production more profitable. Supply increases and the supply curve shifts to the right. In the (less likely) event that a firm uses a less productive technology, costs of production increase and the supply curve shifts leftward.
non price determinant of supply
- price of related products
competitive supply. Competitive supply of two or more products refers to production of one or the other by a firm; the goods compete for the use of the same resources, and producing more of one means producing less of the other. For example, a farmer, who can grow wheat or corn, chooses to grow wheat. If the price of corn increases, the farmer may switch to corn production as this is now more profitable, resulting in a fall in wheat supply and a leftward shift of the supply curve. A fall in the price of corn results in an increase in wheat supply and a rightward shift of the supply curve.
non price determinant of supply- firm expectations
If firms expect the price of their product to rise, they may withhold some of their current supply from the market (not offer it for sale), with the expectation that they will be able to sell it at the higher price in the future; in this case, a fall in supply in the present results, and hence a leftward shift in the supply curve. If the expectation is that the price of their product will fall, they increase their supply in the present to take advantage of the current higher price, and hence there is a rightward shift in the supply curve
non price determinant of supply - number of firms
The number of firms. An increase in the number of firms producing the good increases supply and gives rise to a rightward shift in the supply curve; a decrease in the number of firms decreases supply and produces a leftward shift. This follows from the fact that market supply is the sum of all individual supplies.
