2.2 Supply Flashcards
Definition of ‘supply’
The supply is the amount of goods & services producers are willing and able to produce at any given price, over a time period, ceteris paribus
(why “willing and able”? - Because they have the available resource to produce)
What is the ‘market supply’?
Sum of all individual supplies in the market
What is the law of supply?
The law of supply states that as the price of a good increases, the quantity supplied will also increase, over a period of time, ceteris paribus (positive relationship)
Why do we say firms are willing & able to produce more goods as the price increases?
Because in economy we assume all firms are profit-maximisers
What will cause a movement along the supply curve?
A change in price will cause a movement along the supply curve
If the price increases, what will happen to the supply curve?
The quantity supplied will increase, (expansion)
If the price decreases, what will happen to the supply curve?
The quantity supplied will decrease
What will cause a shift of the supply curve?
Shifts are due to non price determinants
What are the non-price determinants of supply?
CISTERN
- Cost of production
- Indirect taxes
- Subsidies
- Technological change
- Expectation of future prices
- Number of firms
How does “cost of production” shift the supply curve?
If costs increase, then profits decrease and thus supply decreases
How does “indirect taxes” shift the supply curve?
higher production costs leads to a decrease in supply, so the supply curve shifts to the left
How does “Subsidies” shift the supply curve?
Subsidies are a payment made by the gov to a firm. Subsidies decrease the production costs, therefore the supply increases and the supply curve shift to the right
How does “Technological change” shift the supply curve?
Improvement in technology will increase productivity and therefore efficiency, causes a right shift of the supply curve
How does “Expectation of future prices” shift the supply curve?
If firms expect the market price to increase in the future, they will decrease supply now and wait for the price to increase before supplying more, causes a left shift of the supply curve
How does “Number of firms” shift the supply curve?
Higher number of firms –> outward shift of supply