Week 6 - supply, price determination, price mechanism Flashcards
Define supply
The quantity and of a good or service that producers are willing and able to supply at a give price in each time period
What is the law of supply?
As the price of a product rises, so businesses expand supply.
What causes shifts in supply
Changes in the conditions of supply
List the conditions of supply
PINTS WC - productivity, indirect tax, number of entrants in the market, technology, subsidies, weather, costs of production
Give two examples of costs of production
rent, wages
What is joint supply?
Where an increase or decrease in the supply of one good leads to an increase or decrease in supply of a by-product.
What does equilibrium mean?
A state of equality or balance between market demand and supply - there is no excess demand or supply
What is excess demand?
Excess demand happens where quantity demanded exceeds available supply
What follows excess demand?
Queuing and upward pressure on prices. Higher prices then ration demand
What is excess supply?
When supply is greater than demand
Give three reasons that explain the law of supply
- Profit motive. 2. Law of diminishing marginal returns. 3. New entrants to the market
What are three three functions of the price mechanism?
Signalling, incentive, rationing
