2.3 Supply Flashcards
• explain what is meant by supply • draw and explain a supply curve using data, including individual and market supply • draw shifts of, and movements along, the supply curve • analyse the causes and consequences for consumers and producers, of shifts of, and movements along, the supply curve • explain price elasticity of supply • draw supply curves of different elasticity • evaluate the importance of price elasticity of supply for consumers and producers (17 cards)
What does the term ‘supply’ mean?
The ability and willingness of firms to provide goods and services at each price in a given time period.
What is the ‘law of supply’?
For most products the quantity supplied varied directly with its price.
What does the term ‘individual supply’ mean?
The supply of a good or service by an individual producer.
What does the term ‘market supply’ mean?
The total supply of a good or service as a result of adding together all individual producers’ supplies.
How does a change in price of the good or service affect a supply curve?
It causes movement along the supply curve, contraction of supply if price and quantity decreases or expansion of supply if price and quantity increases.
How do non-price factors affect a supply curve?
It causes the supply curve to shift inwards (to the left) if there is a fall in supply or shift outwards (to the right) instead if there is rise in supply.
What 7 non-price factors cause shifts of the supply curve?
- Cost of production
- Taxes and subsidies
- Technology
- Climate
- Number of producers or size of existing firms
- Government regulation
- Productivity
What does the term ‘price elasticity of supply (PES)’ mean?
The responsiveness of quantity supplied to a change in the price of the product.
What does the term ‘inelastic supply’ mean?
When the percentage change in quantity supplied is less than the percentage change in price (PES value = 1 > 0).
What does the term ‘elastic supply’ mean?
When the percentage change in quantity supplied is greater than the percentage change in price (PES value = 1 > ∞).
What does the term ‘unitary elastic supply’ mean?
When the percentage change in quantity supplied is the same as the percentage change in price (PES value = 1).
What does the term ‘perfectly price elastic supply’ mean?
When the price of the product changes, the quantity supplied would be infinite (PES value = ∞).
What does the term ‘perfectly price inelastic supply’ mean?
When the price of the product changes, the quantity supplied would not be affected (PES value = 0).
How to calculate ‘price elasticity of supply (PES)’?
percentage change in price
What is the importance of ‘price elasticity of supply’ for consumers?
If PES is inelastic, it may price more difficult for a consumer to get more of the product without paying a much higher price. If PES is elastic, it is relatively easy to obtain more of the product, but there may be less flexibility in negotiating the price the consumer wants.
What is the importance of ‘price elasticity of supply’ for producers?
In most cases it is better to have an elastic PES, as they can respond more easily to price changes because it is more flexible and easy to change supply in response to changes in demand and makes the producer more competitive.
What factors affect ‘price elasticity of supply (PES)’?
- Spare capacity
- High stock levels
- Short production time frame
- Ease of factor substitution
- Adopting the latest technology
- Training employees to perform a range of jobs
