U1 AOS2 - Lesson 5 - Law of Supply and Supply Curve Flashcards
Supply
The willingness or ability of suppliers or producers to produce or sell goods and services
Supply curve is represented by an ________________ sloping line
Upwards
Law of Supply
- As the price increase, the quantity supplied increases
- As the price decreases, the quantity supplied decreases
As the price of a good/service increases, the quantity supplied…
Increases
As the price of a good/service decreases, the quantity supplied
Decreases
VCAA 2021
Question 15
Which one of the following products would have a vertical supply curve?
A. apples
B. haircuts
C. streaming services
D. paintings by an artist who is now dead
Vertical supply curve = quantity cannot increase or decrease
Answer: D
Which one of the following products would have a horizontal supply curve?
A. apples
B. haircuts
C. streaming services
D. paintings by an artist who is now dead
Horizontal supply curve = unlimited quantity at the same price
Answer: C
The law of supply states that the quantity of a good or service supplied by producers varies
A. directly with a rise in price
B. inversely with a rise in price
C. proportionally with a rise in price
D. in response to changes in the conditions of demand
A
Not C because it is not always exactly proportional (eg. a $2 increase in price might not mean an increase of 2 quantities produced of a good/service)
Why does an increase in price cause an increase in the quantity supplied?
Increase in price → increase profit opportunity for each unit of a good/service produced → increase willingness for producers to produce (since they are motivated by higher profit) → increase quantity supplied
What does the supply curve represent?
The relationship between the price of a good and the quantity supplied by producers.
Why does a decrease in price cause a decrease in the quantity supplied?
Decrease in price → decrease profit opportunity for each unit of a good/service produced → decrease willingness for producers to produce (since they are motivated by higher profit) → decrease quantity supplied
True or False:
A upward-sloping supply curve indicates that as the price decreases, the quantity supplied also decreases.
True
The law of supply states that, all else being equal, an increase in price will lead to a _____ in quantity supplied.
Increase
Profit Motive
Producers seek to maximise their profits. Higher price provides a greater chance of making a profit so increase the willingness of producers to produce
At price (P), construct a supply and demand graph that highlights realised supply (ie. the quantity which gets produced)
At price (P), construct a supply and demand graph that highlights unrealised supply (ie. the quantity which producers are willing to produce but does not get produced)
