Flashcards in Ch. 5 Supply & Changes in Supply Deck (45)
The quantity of a good/service that is available and how much supplies are willing and able to produce and sell at various prices.
A listing of quantities supplied at various prices.
A graph of the supply curve.
Law of Supply
Suppliers will offer more at high prices and less at lower prices (positive relationship/upward slope)
- as price increases, existing firms will produce more in order to earn more $ and new firms will have an incentive to enter the market
Change in Supply
A willingness and ability to increase quantity supplied at all price levels.
What are the determinants of supply?
T - technology
I - input costs and availability
G - government influence
E - expectation of future prices
R - related goods prices
S - suppliers (# of firms)
What is technology in terms of supply?
It will generally increase productivity (unless breaks down). This includes new production processes.
What is input costs & availability in terms of supply?
The costs of production and materials. It is the change in supply due to natural disasters and conflicts.
What is a supply shock?
A sudden change.
What is government influence in terms of supply?
This is subsidies, taxes and regulations.
Government payment that supports a certain business or industry.
Government intervention that affects the production of a product.
What is expectation of future prices in terms of supply?
If suppliers think the prices will go up, they may hold on to some supply. If producers think prices will go down, they may want to sell as much as possible.
What is related goods prices in terms of supply?
Firms can use the same resources to produce different goods. If the profit is higher for one product that uses the same input, production will shift to that output.
What is suppliers in terms of supply?
Less suppliers, means less supply.
What is elasticity of supply?
Shows how sensitive producers are to a change in price.
What is the equation for elasticity of demand?
% change of quantity / % change of price
What is inelastic supply?
Not responsive to a change in price. (steep curve, vertical)
What is elastic supply?
Sensitive to a change in price. (flat curve)
What is perfect inelastic?
Quantity doesn't change (vertical line) as there is a set quantity supplied.
What determines whether supply is elastic or inelastic?
1) Time to adjust
2) Cost of production
3) Availability of inputs (materials)
How does time to adjust affect supply?
Elastic in the long run. Inelastic in the short run (fixed).
How does production cost affect supply?
Lower prices are elastic. Higher prices are inelastic.
How does availability of inputs affect supply?
Elastic means materials are readily available. Inelastic means materials are not readily available.
What are the two types of production costs?
Fixed costs and variable costs
What are fixed costs?
Costs that does not change no matter how much is produced.
What are variable costs?
Costs that change depending on how much is produced.
What is total cost?
Fixed costs + variable costs
What is marginal cost?
Additional costs of producing one more unit.