Supply Flashcards
What is the Law of Supply?
The Law of Supply states that if the price of a good increases, more of it will be supplied but if the price of the good decreases, less of it will be supplied.
List 2 roles of firms in economics.
1) Facilitates Choice
2) Creates Employment
Give 2 examples of supply curves that break the Law of Supply.
1) Perfectly Inelastic Curve: This occurs when goods are perishable or when the quantity of a good is fixed (such as tickets to a tennis match).
2) Maximum Capacity Constraint: This depicts a situation where the firm, utilising all its machinery and labour within its factory has a maximum capacity, which, when reached, cannot be exceeded even if the price increases.
List 2 factors that would cause a shift in the Supply Curve.
1) Technology (T): T increases the efficiency of production of a good and can reduce costs for the firm, this will always shift the curve to the right.
2) Costs of Labour: A reduction in costs (such as a reduction in the price of raw materials) will shift the curve to the right whereas an increase in costs (such as the introduction of a minimum wage) will shift the curve to the left.
Define ‘Individual Supply’.
The different quantities of a good an individual firm is willing to supply at each price.
Define ‘Market Supply’.
The total quantity all firms in the industry will make available at each price.
How can the market supply be found?
By adding the quantity supplied by each individual firm at every price to derive the overall quantity supplied to the market at each price.
