Theory Of Supply Flashcards
Define supply
The amount of good or service that producers are willing and able to sell at each possible price in a given period of time, CP
How is QS represented in PPC
A point on the given supply curve
How is supply represented on PPC?
The entire supply curve
Law of supply
It states that in a given time period, QS is a product is directly related to its price
Profit = ___ - ___
Profit = Total revenue - total cost
How does profit motivate producers to increase supply??
As price of a good increases, CP, producer is willing to increase QS as it’s more profitable
Hence produce and sell more, more products supplied
How does profit motivate producers to produce more supply pt 2?
Ability to supply
When a producer increases output, each additional unit of good or service is increasingly costly to produce
Hence MC (marginal cost) increases as more goods and produced
W prices increased and profits, Price AKA marginal revenue (MR) = Marginal cost (MC)
How is direct r/s between QS and price shown in curve?
Upward sloping supply curve
Increase in QS causes __ in curve
Causes upward movement of point on the curve
Decrease of QS causes ___ on curve
Causes downward movement of point on the curve
How is decrease in supply shown on PPC
leftward shift of curve
How is increase in supply seen on PPC
rightward shift in curve
Non price determinants of supply
Weather conditions
Expectations of producers
Technology
Price of related goods
Input prices
Gov policies
Input prices (exp)
Price of factor input ^
Cost of production ^
Willingness and ability to sell decrease
Supply of good decrease
Technology (exp)
Tech
More efficient production
Cost of production decrease
Increase in profits
Willingness and ability to sell increase
Supply increase
