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 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.
What is the long-run?
-The length of time over which all factors of production can be changed.
What is the marginal cost?
-The cost of producing one additional unit of output.
What is the Law of diminishing marginal returns?
-Is when, if one factor of production is fixed, beyond some point additional units of input will provide less and less extra output.
True or False, Supply curves always slope upwards.
-False, People that are more focused on income and substitution would have a downwards supply curve.
True or False, a change in price will move you along a supply curve.
True, this would impact the change in quantity.
True or False, if other things are not equal, such as wage rates of workers, then the supply curve will shift.
-True, this impacts productivity.
What two conditions can contribute to distinguish the shift of a supply curve to the left?
-If the cost of production increases.
-Or, if the productivity decreases.
What two conditions can contribute to distinguish the shift of a supply curve to the right?
-If the cost of production decreases.
-Or, if the productivity increases.
