2.3 Supply Flashcards
(11 cards)
supply
Supply is but the ability and
willingness of firms to provide goods and services at each price
level in a given time period.
law of supply (and why)
For most goods and services the quantity supplied varies
directly with the price, i.e. as the price rises, the quantity
increases, or as the price falls, the quantity also falls. This is
comes about because:
● higher profits are likely to be earned by existing firms if they
supply more
● production costs are likely to rise as output expands, so a
higher price is needed to cover these extra costs
● new firms may be attracted to the market because the higher
prices mean they can cover their higher production costs
factors shifting supply curve
costs of production, taxes/subsidies, technology, climate, change in no of firms/size of firms, government regulation
how do affect supply:
costs of production, taxes/subsidies, technology
how do affect supply:
climate, changing in no/size of firms, gov. reg.
minimum wage. These will all increase the costs of fi rms and
could lead to the supply curve shifting to the left.
consequences of (rightward) shift in supply (5)
consequences of movements in supply
PES
price elastic vs perfectly price inelastic supply curve
effect of PES on consumers
While most consumers do not have the means to calculate
PES, this does not mean that it has no effect on them. If PES is
inelastic then it may prove more diffi cult for a consumer to get
more of the product without paying a much higher price. In some cases, such as seats in a sports stadium or at a concert, even
an ability to pay more may not provide a seat, as the numbers
are restricted to how many seats there are. On the other hand, if
PES is elastic, it is relatively easy to obtain more of the product,
but there may be less fl exibility in negotiating the price the
consumer wants.
how can firms increase PES
