2.3 - supply

• Law of supply

  For most products, the quantity supplied varies directly with its price
• Supply


  The ability and willingness of firms to provide goods and services at each price in a given time period
• Individual supply


  The supply of a good or service by an individual producer
• Market supply


  The total supply of a good or service as a result of adding together all the individual producers’ supplies
• Movement along the supply curve


  When the price changes, leading to movement up (expansion) or down (contraction) on the existing supply curve
• Shift of the supply curve

  The complete shift of the existing supply curve either to the right (increased) supply or to the left (decreased) supply
• Elastic supply


  When the percentage change in quantity supply is greater than the percentage change in price
• Inelastic supply


  When the percentage change in quantity supplied is less than the percentage change in price
• Price elasticity of supply


  The responsiveness of quantity supplied to a change in the price of the product
• factors affecting supply


  P - Price of similar g/s

  I - Indirect taxes

  N - Number of firms

  T - Technology

  S - Subsidies

  W - Weather

  C - Cost of production
• three special PES exceptions


  PES = 0 (perfectly price inelastic)

  PES = infinity (perfectly price elastic)

  PES = 1 (unitary price elastic)
• unitary supply


  when the percentage change in quantity is the same as the percentage change in price
• how can firms increase their elasticity


  creating spare capacity

  training employees so that they can perform a range of jobs as required

  adapting or upgrading to new technology