The determinants of the supply of G + S , PES

• what is the definition of supply?

  the quantity of goods and services producers are willing and able to sell at a given price , at a given time in a given market
• what is the relationship between supply and and price?

  direct as when price increases , the g+s are more profitable which incentivises firms to supply more = supply increases

  • if the price of the good remains high = more producers are attracted to switch to the production of these profitable goods = market supply increases
  • larger outputs = more production costs = firms charge higher prices
• what do economists assume the main objective for firms are?

  profit-maximisation
• what causes movement along the supply curve?

  change in price (based on the theory/ assumption that firms aim to profit maximise)

  • Contraction of supply - price decrease = quantity supplied decreases
  • Expansion of supply - price increase = quantity supplied increases
• what is joint supply?

  when one good is produced another good is produced using the same raw materials e.g meat from cows , leather made from the skin
• what is excess supply?

  when producers want to sell more than what consumers are willing to buy (usually occurs above equilibrium point)
• what is competing supply ?

  when resources can be used to make one good or another but not both e.g farmer can use its land to plant carrots OR potatoes but not both for the same quantity
• Factors affecting supply : PINTSWC

  P - productivity - higher productivity = fall in cost of pro = increase supply

  I - indirect taxes - contributes to cost of production = decrease supply

  N - number of firms - more firms = larger supply

  T - technology - advanced tech = more cost efficient (large machinery enables firms to spread fixed costs over greater output) = increase supply

  S - subsidies = encourages firms to produce = increase supply

  W - weather - favourable conditions = better for agricultural produce = increase supply

  C - costs of pro - high = decrease supply (vica versa)
• how do exchange rates effect the supply curve?

  can decrease or increase the cost of imports
• how do government policies effect supply?

  • Indirect taxes - increase the costs on production (as they are taxes placed on g+s produced by individuals and firms) = decrease supply
  • Subsidies - finance provided by gov to encourage production = reduces costs = increases supply
• what is elasticity ?

  measure of responsiveness of one variable to changes in another (how much would the demand for change be )
• what does inelastic mean?

  price will be greater than change in demand

  • less responsive to price changes
  • fewer substitutes
  • habit forming
  • addicting products
• what is price elasticity of supply?

  responsiveness of a change in supply to a change in price
• what is the formula for price elasticity of supply?

  % change in quantity supplied / % change in price
• PES is elastic when the value is above +1 (small % change in price = larger % change in quantity)
• PES is inelastic when the value is between 0 and +1 (large % change in price = smaller % change in quantity supplied)
• When supply has a PES = 0 it is perfectly inelastic as supply is fixed so a change in demand cannot be met easily
• When supply has a PES = infinity it is perfectly elastic so any quantity demanded can be met without changing price
• What is market supply?

  The sum of the supplies of all the sellers in the market.
• What are the 5 PES graphs?

  Elastic Graph - PES > 1

  Inelastic Graph - PES < 1

  Unit Elastic Graph - PES = 1

  Perfectly Elastic supply diagram - PES is infinite

  Completely inelastic Supply Diagram - PES = 0

  
• What are the factors affecting PES?

  1) Time scale: In the short run, supply is more price inelastic, because producers cannot quickly increase supply. In the long run, supply becomes more price elastic.

  
  

  2) Spare capacity: If there are spare resources, for example in a recession there are lots of spare and unemployed resources, supply can be increased quickly.

  
  

  3) Level of stocks: If goods can be stored, such as CDs, firms can stock them and increase market supply easily. If the goods are perishable, such as apples, firms cannot stock them for long so supply is more inelastic.

  
  

  4) How substitutable factors are: If labour and capital are mobile, supply is more price elastic because resources can be allocated to where extra supply is needed. For example, if workers have transferable skills, they can be reallocated to produce a different good and increase the supply of it.

  
  

  5) Barriers to entry to the market: Higher barriers to entry means supply is more price inelastic, because it is difficult for new firms to enter and supply the market.
• what is PES?

  is the measure of responsiveness of quantity supplied is to a change of price of a good