Supply and the Supply Curve Flashcards
(20 cards)
What is the definition of Supply?
The quantity of a good or service producers are willing and able to supply at a given price, in a given time period.
What is the Law of Supply?
There is a direct relationship between price and quantity supplied:
As price increases, quantity supplied increases
As price falls, quantity supplied decreases
(Assuming ceteris paribus)
Why does the supply curve slope upward?
Profit motive: Higher prices mean more profit, so firms supply more.
Costs rise with output: More output = higher costs; higher prices are needed to cover those costs and protect profit margins.
What causes a movement along the supply curve?
A change in price of the good itself causes an extension (up) or contraction (down) in supply.
What causes the supply curve to shift?
A non-price factor (change in conditions of supply).
What happens to the supply curve if supply increases (non-price)?
The supply curve shifts right (S1 to S2) – more supplied at every price.
What happens to the supply curve if supply decreases (non-price)?
The supply curve shifts left (S2 to S1) – less supplied at every price.
What happens to the supply curve when non-price factors increase supply?
The supply curve shifts right (S1 to S2) – more is supplied at every price.
What happens to the supply curve when non-price factors decrease supply?
The supply curve shifts left (S2 to S1) – less is supplied at every price.
What do lower costs of production do to supply?
Increase supply – producers are willing to supply more at the same price → curve shifts right.
What do higher costs of production do to supply?
Decrease supply – producers need a higher price to supply same amount → curve shifts left.
What is the mnemonic for non-price factors affecting supply?
S: Subsidies
E: Expectations
N: Number of firms
T: Technology
P: Productivity
I: Indirect tax
T: Transport costs
Name other non-price factors affecting supply besides SENT PIT.
Labour costs
Cost of raw materials
Utilities (energy, water)
Weather (esp. for agriculture)
Regulations
What is labour productivity and how does it affect supply?
Output per worker per time period. If productivity increases, supply shifts right (lower costs). If it decreases, supply shifts left (higher costs).
What effect does an indirect tax have on supply?
Increases costs of production. If a tax is added or increased, supply shifts left. If removed or reduced, supply shifts right.
How does the number of firms in a market affect supply?
More firms = more supply → supply curve shifts right.
Fewer firms = less supply → supply curve shifts left.
What effect does technology have on supply?
Improved technology lowers production costs → supply shifts right.
Outdated tech can increase costs → supply shifts left.
What is a subsidy and how does it affect supply?
A government payment to producers to reduce production costs.
Subsidy added/increased → supply shifts right.
Subsidy removed/reduced → supply shifts left.
How does weather affect supply?
Good weather (sunlight, ideal rainfall) → increases supply, shifts curve right.
Bad/extreme weather (storms, drought) → disrupts production, shifts curve left.
Common in agriculture.
What are costs of production and how do they affect supply?
Includes labour, transport, raw materials, utilities, regulations, etc.
If costs rise, supply decreases → curve shifts left.
If costs fall, supply increases → curve shifts right.
