The determinants of the supply of goods and services Flashcards
What does the relationship of the supply curve show?
-The price and quantity supplied.
-Higher prices imply higher profits and this will provide the incentive to expand production.
-This causes shifts in the supply curve.
What are Producers?
-People that create and supply goods and services to a market.
What is definition of Supply?
-Supply can be defined as the amount of a good or service that producers are willing and able to sell at any given price.
What are the determinants (influencing factors) of supply?
-The price of the good.
-The impact of changing costs of production.
-Technological progress.
-Prices of other goods and services.
-Government policy. E.g: taxes and subsidies.
-Other factors. E,g: expectations.
What is the mathematical method of the quantity supplied of a good or service?
- qs = f (p, production costs, technology, p of other goods/services, G policy, all other factors) where:
qs= quantity supplied, f= is a function of, p= price, g= government.
What impacts does changing costs of production have
-The costs of production are created by the price of factor inputs like the factors of production.
-If the cost of producing a good or service increases, it will become more expensive to supply the product. (This may lead to firms reducing output).
-The price of factor inputs can also be reduced making it cheaper to supply a product. (There will be an increase in supply).
-Improvements in technology an help to reduce costs of production.
What impacts does technological progress have on supply?
-This would mean that firms can produce in a more efficient and cost effective manner.
-Improved large scale machinery allows them to spread fixed costs over great output, making the costs per unit produced cheaper.
-As technology improves, firms find it profitable to supply more products.
What impact does the Prices of other goods and services have on supply?
-A firm can use its factors of production to produce a range of products.
-If price of good A increases, it may be profitable to switch from supplying good B in order to supply good A.
-New firms will enter markets with rising prices as there is greater incentive to make profits.
What impact does the Government policy (e.g: taxes and subsidies) have on supply?
-Indirect taxes make it more expensive to produce a product.
-Subsidies will make it cheaper to produce a product.
What impact does other factors (e.g: expectations) have on supply?
-A variety of other factors like expectations of future events, the degree of competition in the marker and the power of firms within a market will all impact on the quantity supplied of goods and services.
What is the relationship between the price of a product and quantity supplied?
-As the price of a product rises, quantity supplied increase. (vice versa)
What is the relationship between firms and cost coverage?
-At higher prices, firms are more likely to cover their costs.
-At this point, the firms will be making a profit.
-The firms are unlikely to produce if they are making a loss, particularly in the long-term.
-Higher prices therefore provide an incentive for firms to expand production.
What is the relationship between the price and the quantity supplied?
-As price falls quantity supplied decreases.
-Price on the y-axis.
-Quantity on the x-axis.
-A change in price is always shown by a movement along the supply curve.
What happens to the supply curve if the change in supply is caused by any other factor?
-An increase in supply is shown by a shift to the right.
-A decrease in supply is shown by a shift to the left.
Factors causing the shift in the supply curve include:
-Changes to the cost of production.
-Introduction of new technology.
-Indirect taxes.
-Government subsidies.
What is the short-run?
-The length of time that at least one factor of production is fixed.
