Supply
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- Created by: ambersunner
- Created on: 30-12-16 13:04
Supply
Quantity of goods that seller are prepared to sell at any given price
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Supply and Price
Assuming certus parabus: when a price of a good increases producers will expand production Gain higher profits
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What happens to supply if price of a good rises?
Extension in supply
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Supply Curve
= shows quantity that will be supplied at a given price over a period of time Fall in price = fall in quantity supplied = contraction of supply – movement along the supply curve Lower prices may cause a decrease in production and some may stop
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Why is the curve upward sloping?
Firms motivated by profit The cost of producing a unit increases as output increases (rising marginal cost)
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Conditions of supply
Change in price = movement along the curve
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Factors of Productio
these increase = firms will increase price to maintain profit margin -s Leads to a decrease in supplyShift upwards and to the left = fall in supply - diagram in notes
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Technology
New tech introduced = fall in costs of production Productive efficiency = encourage firms to produce more at same price or the same at lower price Supply curve will shift right
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Price of Other goods
If beef prices increases = increase in quantity of beef More cows raised and slaughtered = more leather Fall in other agriculture production
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Other factors
• The goals of sellers • Government legislation • Expectations of future events • Weather
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Producer Surplus
This is when firms are willing to pay more for there units than the actual price Differences between the market price, which the firm receive, and the price at which it is prepared to supply E.g. firm willing to pay 20p per unit – market price = 10
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Price elasticity of supply:
The responsiveness of quantity supplied to changes in price can also be measured
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Equation:
(percentage change in quantity supplied)/(percentage change in price)
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PES is always..
positive
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Perfectly inelastic
= 0 No response in quantity supplied to a change in price
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Inelastic
between 0 and 1 Less than proportionate response in quantity supplied to a change in price
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Unitary elasticty
= 1 Percentage change in quantity supplied equal percentage change in price
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Elastic
= between 1 and infinity More than proportionate response in quantity supplied to a change in price
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Perfectly elastic
infinite Producers are prepared to supply any amount at a given price
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Avalialiability of substitues
These are producer substitutes \ Good, which a producer can easily produce as alternatives If a produce has many substitutes = producers can quickly and easily alter pattern of production if its price rises or falls Elasticity of supply = high
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Continued
Fewer substitutes = price elasticity is low
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Time
Shorter the time period = more difficult to switch production Short term = price inelastic because: Some items to a long time to make e.g. agriculture No capacity to make more of a product = difficult to increase supply if prices rises sharply more
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Continued
more capacity = less strain on increasing supply in response to price Some products = easy and relatively cheap to hold stocks = long the time period – easier to build up stock = elastic high in the long term PES = higher if it easier to switch prod
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Short and Long Run
Long run: when all factors of production involved in making a good are variable All can be changed Short run: period of time when at least one factor of production is fixed = cannot be changed
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Price determinations
Determined by eequilibrium price - Buyers and sellers come together in a market A price is struck and goods or services are exchanged Excess demand = more demand and less supply = shortage of products
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If price increases....
then less people will buy the products causing excess in supply This occurs when firms try to sell products at higher prices and failed Only one price where demand and supply are equal = equilibrium price
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This is when...
demand of buyers equals the supply of sellers in market Also known as market clearing price = all products cleared of the market Where demand and supply cross
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Changes in demand and supply
As income rises the equilibrium price rises The quantity bought and sold also rise in equilibrium = Increase in income = shifts demand curve Movement along supply curve
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Increase demand can cause...
boom in certain products E.g. prices of television set = fallen due to increase in productive efficient (introduction to new tech) Fall in costs of production shown by right shift in supply curve Movement along demand curve
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Other cards in this set
Card 2
Front
Supply and Price
Back
Assuming certus parabus: when a price of a good increases producers will expand production Gain higher profits
Card 3
Front
What happens to supply if price of a good rises?
Back
Card 4
Front
Supply Curve
Back
Card 5
Front
Why is the curve upward sloping?
Back
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