Topic 2: Supply and Shifts in the Supply Curve Flashcards
1
Q
Explain law of supply
A
(all other things being equal) quantity supplied rises when price rises
- Supply is positively related to price
2
Q
define supply
A
amount sellers are willing and able to sell
3
Q
what explain the law of supply (why upward curve)
A
- As price falls, producers are willing to supply more
o Reflects higher marginal costs of producing more
o Reflects greater revenues for firms - Increase in price acts as a signal to firms to:
o Allocate more resources to the good
4
Q
what does a right shift do to supply
A
increase supply
5
Q
what does a left shift do to supply
A
decrease supply
6
Q
terminology referring to ‘movement’ and shift of supply curve
A
- Movement along curve: ‘Change in quantity supplied’
- Shift of curve: ‘change in supply’
7
Q
how does input prices shift supply graph
A
o Increasing input price > firm increase overall cost > left shift (less profitable)
o Decreasing input price > decrease overall cost > right shift (more profitable)
8
Q
which way does supply shift for increase in tech and why
A
- Improvement of technology = decrease in costs of production
o Supply curve shifts to right
