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  • Created by: bethany
  • Created on: 13-01-13 15:12
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  • What determines the supply of a good or service in a market
    • Supply curve
      • Def: shows the amount of a good that producers are willing to sell at various prices.
      • slope upwards for two reasons
        • As price rises, it encourages firms to supply more of a good to make profit
        • As firms raise output in the short run, they face rising production costs. To cover the rising costs, firms need to be able to charge higher prices to consumers. Higher prices can enable marginal firms to enter a market.
      • Movement along the demand curve : only for a change in price
      • SHIFTS IN THE SUPPLY CURVE: The price of inputs, technology and new discoveries, government interference, price of other goods, the weather, entry and exit of firms
    • Price elasticity of supply
      • % change in quantity supplied / % change in price
        • Elastic (greater than 1) increase output without a price rise or time delay
        • Inelastic ( less than 1) hard to change production in given time period
      • Determinants of price elasticity of supply
        • Level of spare capacity, state of the economy, level of stocks of unfinished goods in a firm, perishability of the product, ease of entry to an industry and the time period under consideration


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