1.2.1 - Supply Flashcards
(9 cards)
What is supply?
Supply is the quantity of goods or services that a producer is willing and able to supply on to the market at a given prices in a given period of time.
What is the basic law of supply? Why is this?
The basic law of supply is that as the selling price of a product rises, the businesses expand their supply to the market.
The higher selling prices acts as an incentive for businesses to produce more, and it may also attract other suppliers into the market.
Draw the diagram showing the basic law of supply.
What factors can lead to a change in supply? (5)
- Changes in the costs of production.
- Introduction of new technology.
- Indirect taxes.
- Government subsidies.
- External shocks.
How do change in the cost of production cause a change in supply?
It stands to reason that the costs of producing output will influence how much a business can supply.
Lower unit costs = means that a business can supply more at each price (for example through higher productivity).
Higher unit costs = causes an inwards (left) shift of the supply curve (for example a rise in wage rates, or an increase in energy prices/other raw materials).
How can the introduction of new technology lead to a change in supply?
Technological change encourages new entrants to a market (increasing supply) and can also enable existing suppliers to become more efficient, thereby increasing their potential to supply.
How can indirect taxes cause a change in supply?
An indirect tax is imported on producers (suppliers) by the government. A tax increase increases the cost of product so causes an inward (left) shift in the supply curve.
What is a government subsidy?
A subsidy is a form of government intervention which lowers costs, thus causing the supply curve to shift outwards (right).
What are indirect taxes?
Indirect taxes are taxes imposed by the government on spending such as VAT and excise duties. Responsibility for payment lies with the business.
