1.2 Supply

Question 1

what is supply?

Answer 1

when a producer is willing and able to sell a good

Question 2

draw a supply curve

Answer 2

as the price of a good increases, the profit that can be made for the producer incraeses and so they have more of an incentive to supply a larger quantity

Question 3

define supply

Answer 3

the quanitity of a good or service that firms are willing to sell at a given price over a given time period

Question 4

what are the assumptions of a supply curve?

Answer 4

• firms want to maximise profits
• doesn’t consider why the price increases
• just tells us what were to happen if price increases

Question 5

what are the conditions of supply? (5)

Answer 5

• weather
• technology
• cost of production (profit & incentive, cannot afford)
• number of suppliers
• productivity

shift inwards/ outwards

Question 6

what is excess supply/ surplus?

Answer 6

the gap between supply and demand at a given price
* producers will decrease their prices to get eliminate excess supply
* (when price is above equalibrium price)

Question 7

when is there equilibrium?

Answer 7

quantity supplied = quantity demanded

supply and demand meet

Question 8

what is the excess supply/demand at
* 70p
* 40p
* 50p

Answer 8

Question 9

incease in supply

Answer 9

1. s1 to s2
2. leading to p1 to p2 (decrease in price)
3. because Q1 to Q2 (quantity supplied increased)

Question 10

what is price elasticity of supply?

Answer 10

a measure of the responsivness of quantity supplied to a change in price

Question 11

what is the formula for price elasticty of supply?

Answer 11

PES = %change in quantity supplied / %change in in price

%ΔQs/ %ΔP

Question 12

what is the range of PES elastic, inelastic, unitary elastic?

Answer 12

• Elastic: 1- ∞
• Inelastic: 0-1
• unitary elastic =1

Question 13

what do the elastic and inelastic supply curves look like?

Answer 13

Question 14

what are the five main factors which effect elasticity of supply?

Answer 14

• time
• state of the economy
• availibilty of factors of production
• spare capacity
• stockpile& perishability

TEASS

Question 15

what does spare capacity mean?

Answer 15

how much capacity is there that is not being used

Question 16

how does spare capacity affect price elasicity of suppply?

Answer 16

the larger the spare capacity, the more price elastic something is, as they can actually respond to change in price

Question 17

how does availbility of factors of producition affect price elasticity of supply?

how easy is it to find factors of production

Answer 17

the higher the availibity of factors of production, the more elastic it is likley to be, as it is alot more easier to respond to chnag ein price and supply more

Question 18

how does the state of the economy affect price elasticity of supply?

Answer 18

• bad state of economy, more easy to hire workers/ expand business and respond to changes in price- more elastic
• good state of the economy, less easier to expand business and respond to changes in price- inelastic

Question 19

how does stockpiles & perishability affect price elasticity of supply?

Answer 19

• the more perishable a good, the more inelastic
• if good is able to be kept in stockpile, then if prices chnage they can immediatly supplied, elastic

Question 20

what are the specific quanitities of short run and long run in terms of production/supply?

Answer 20

• short run: when at least one factor of production is fixed
• long run: when all factors of production can be changed

Question 21

how does time affect price elasiticity of supply?

Answer 21

• short run: price inelastic as they cannot respond due to a factor os production being fixed, cannot produce more
• long run: price elastic as they can respond to changes in priceand produce more

argriculture and farmers

Question 22

what is the value of a perfectly inelastic supply, perfectly elastic supply?

Answer 22

• perfectly inelastic: PES=0 [I]
• perfectly elastic : PES= ∞ [-]

Question 23

What are some examples of perefctly inelastic goods (price elasticity of supply) ?

Answer 23

• short run: farmers, football match tickets (maxium capacity)

Question 24

What is joint supply?

Answer 24

When supply of a particular good also leads to supply of a by product. The production process leads two or more different outputs. Increase in production leads to an increase in the by product
Eg: milk, whey

Question 25

What is competing supply?

Answer 25

When a goods can be put to more than one use. Employing it in one form means that it cannot be used in another manner. Situations where the factors of production are used to produce different goods
eg: if a farmer decides to use his land to rear cows then he may not be able to rear other animals

Question 26

what is the marginal cost?

Answer 26

the cost of supply each extra unit of a good

Question 27

define supply

Answer 27

the quanitity of a good or service that firms are willing to sell at a given price over a given time period

Question 28

equilibrium price/quantity

Answer 28

demand equals supply so there are no more market forces bringin about chnage to price or quantity demanded

Question 29

excess demand

Answer 29

when the price is set too low so demand is greater than supply

Question 30

excess supply

Answer 30

when price is set too high so supply is greater than demand