What is supply?
The ability and willingness of firms to provide goods and services at each price in a given time period
Explain the law of supply
As the price rises, the quantity supplied rises and as the price falls, the quantity supplied falls
Why does the law of supply come about?
the law of supply comes about because:
- firms are likely to gain higher profits by supplying more
- production costs are likely to increase as more is produced, meaning higher prices are needed to cover the extra production costs
- new firms may be attracted to the market because of the higher prices which mean they can cover their higher costs of production
What is meant by individual supply?
the supply of a good or service by an individual producer
What is meant by market supply?
the total supply of a good or service, found by adding together all the individual producer’s supply
What are movements along the supply curve caused by?
A change in price
What are shifts of the supply curve caused by?
Non-price factors only
What are the 6 causes of shifts of the supply curve?
-costs of production: producers supply less when production costs increase
-taxes and subsidies: increase in tax such as VAT would lead to a rise in costs and thus a fall in quantity. a subsidy to a firm would allow more to be supplied
-tech: intro of new or improved tech can reduce production costs and/or increase the amount that can be produced
-climate: in agriculture, changes in the weather can affect how much farmers can supply each year
-increase in producers or size of firms: both will lead to an increase in quantity supplied and a rightward shift of the supply curve.
gov regulations: intro of new gov regulations such as health and safety and minimum wage will increase production costs for firms, leading to a leftward shift of the supply curve
What are the 5 consequences of a shift of the supply curve?
- economies of scale: could lead to greater profits or lower prices for consumers, or both.
- efficiency: being able to produce more with the same resources leads to greater efficiency and greater productivity.
- sales: if price falls then consumers are likely to buy more leading to an increase in profits
- exports: all of the above make a firm more competitive and increase its ability to export successfully
- monopoly: if a firm becomes more competitive than its rivals then it is able to drive them out of the market, leading to an establishment of a monopoly.
What are the consequences of movements along the supply curve?
a movement along the supply curve results in price and quantity moving in the same direction
What is an expansion of supply?
when a movement up the supply curve occurs
What is a contraction of supply?
When a movement down the supply curve occurs
What is meant by price elasticity of supply?
it refers to the responsiveness of quantity supplied to a change of price of the product
When is supply price elastic?
When a change in price leads to a larger change in quantity
When is supply inelastic?
When a change in supply leads to a smaller change in quantity
What value does elastic supply have?
Between 1 and infinity
What value does inelastic supply have?
between 0 and 1
When is supply unitary elastic?
when a change in quantity is equal to a change in price. it has the value 1
What are the importance of price elasticity on consumers?
- if the products the consumers are buying are inelastic, then they are likely to face higher prices in order to buy them
- if the product they buy has a very inelastic supply, then they may not be able to get more because the quantity is fixed e.g. seats in a stadium or cinema.
- if the product they buy has elastic supply then its quite easy to purchase more
What are the importance of price elasticity to producers?
-firms would prefer to have an elastic PES as its easier to respond to price changes
-more elastic supply allows firms to be more flexible in what they offer to consumers
-very inelastic supply means that prices will depend entirely on demand
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How can firms increase their elasticity?
- upgrading to the latest tech
- creating spare capacity
- improving storage methods to prolong the life of a product
- keeping large amounts of stock
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1.1 Main economic groups & factors of production11
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1.2 The basic economic problem11
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2.1 The role of markets21
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2.2 Demand32
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2.3 Supply21
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2.5 Competition31
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2.6 Production19
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2.7 The labour market13
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2.8 The role of money and financial markets29
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3.1 Economic growth25
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3.2 Low unemployment23
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3.3 Fair distribution of income25
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3.4 Price stability30
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3.5 Fiscal policy54
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3.6 Monetary policy12
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3.7 Supply-side policies0
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3.8 Limitations of markets0
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4.1 Importance of international trade13
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4.2 Balance of payments22
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4.3 Exchange rates23
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4.4 Globalisation0
