Supply | Theme 1 Flashcards
What is supply?
Supply is the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period.
What is the basic law of supply?
As the price of a product rises, businesses expand supply to the market.
What factor moves along the supply curve?
Price is the only factor that moves along the curve.
What are factors that cause a shift in supply?
Factors that cause a shift include cost of production, introduction of new technology, taxation, government subsidy, and external shocks.
What is meant by cost of production?
Cost of production includes factors involved in producing the product, such as labor and raw materials.
How does the introduction of new technology affect supply?
New technology increases profit and speed, allowing supply to be in higher quantities.
What happens to supply when unit costs are lower?
Lower unit costs mean that a business can supply more at each price.
What causes an inward shift of supply?
Higher unit costs, such as a rise in wage rates or an increase in energy prices, cause an inward shift of supply.
How does government subsidy affect supply?
Subsidy makes it cheaper to produce, allowing businesses to provide more of the product to make a larger profit.
What are external shocks?
External shocks are events beyond the control of a business that can negatively impact the supply of products.
What are examples of external shocks?
Examples include world events (wars, political unrest), financial recession, world financial crisis, weather events (floods), and government legislation.
