3.3

• Market supply definition

  The quantity of a good or service that all the firms in a market plan to sell at given prices in a given period of time
• what does the supply curve show?

  the relationship between the price of a good and the quantity supplied - typically upwards sloping due to the profit motive
• what is the law of supply?

  ceteris paribus, as the price of a good increases, the quantity supplied also increases
• Profit definition

  Difference between total sales revenue and total costs of production
• total revenue definition

  all the money received by a firm from selling its total output
• conditions of supply definition

  a determinant of supply, other than the good‘s own price, that fixes the position of the supply curve
• what are the main determinants (non-price factors) of supply?

  • production costs
  • technology
  • taxes and subsidies
  • number of producers
  • price expectations
  • productivity
  • external shocks (e.g weather, war )
• Mnemonic for factors that shift the supply curve

  PINTSWC

  • productivity
  • Indirect taxes
  • Number of firms
  • Technology
  • Subsidies
  • Weather
  • Costs of production
• how do changes in production costs affect supply?

  • if costs of production rise (e.g wages or raw materials), supply decreases
  • if costs fall, supply increases
• how does technology affect supply?

  improvements in tech increase supply by makING production more efficient
• what is the impact of indirect taxes on supply?

  indirect taxes (e.g VAT, excise duties) increase production costs, so supply shifts left
• whats the effect of subsidies on supply?

  reduce production costs, encouraging producers to supply more (shift right)
• how does the number of producers affect supply?

  • more producers = greater market supply
  • fewer producers = reduced supply
• how do expectations of future prices affect supply?

  • if producers expect higher future prices, they may hold back supply now (to sell later at higher prices)
  • if prices expected to fall, they may increase current supply
• how do natural factors or shocks affect supply?

  natural disasters, weather, wars, or pandemics can reduce supply unexpectedly
• what’s the difference between a movements along the supply curve and a shift of the curve?

  • movement = change in price
  • shift = change in non-price factors
• Increase in supply…

  Rightwards shift of the supply curve
• decrease in supply…

  leftwards shift of the supply curve