supply

• Buyers demand goods whilst sellers supply goods
• • If the price of a good increases, producers are likely to expand production to take advantage of the higher prices and the higher profits they can now make. 
• In general, quantity supplied will rise if the price of the good also rises, all other things being equal 
• A fall in price will lead to a fall in quantity supplied, or contraction of supply
• At a lower price, some firms will cut back on relatively unprofitable production whilst others will stop producing altogether 
• An upward sloping supply curve assumes that: firms are motivated to produce by profit and the cost of producing a unit increases as output increases
• Changes in price will lead to a change in quantity supplied 
• The supply curve is drawn on the assumption that the general costs of production in the economy remain constant 
• If the costs of production increase at any given level of output, firms will attempt to pass on these increases in the form of higher prices
• A rise in the costs of production will therefore lead to a decrease in supply
• A factor which affects supply of a particular good is the state of technology
• If new technology is introduced to the production process it should lead to a fall in the costs of production 
• Changes in the prices of some goods can affect the supply of a particular good 
• Other factors affecting supply - the goal of sellers, government legislation, expectations of future events, the weather and producer cartels 
• The total amount of producer surplus earned by firms is shown by the area between the supply curve and horizontal line at the market price. - it is the sum of the producer surplus earned at each level of output 
• Price elasticity of demand measures the responsiveness of changes in quantity demanded to changes in price
• Price elasticity of supply = percentage change in quantity supplied / percentage change in price
• The supply curve is upward sloping (an increase in price leads to an increase in quantity supplied and vice versa)
• Price elasticity of supply is perfectly inelastic (zero) if there is no response in quantity supplied to a change in price
• Price elasticity of supply is inelastic (between zero and one) if there is a less than proportionate response in quantity supplied to a change in price
• Price elasticity of supply is unitary (one) if the percentage change in quantity supplied equals the percentage change in price
• Price elasticity of supply is elastic (between one and infinity) if there is a more than proportionate response in quantity supplied to a change in price
• Price elasticity of supply is perfectly elastic (infinite) if producers are prepared to supply any amount at a given price
• Determinants of elasticity of supply - availability of substitutes and time
• The long run is when all factors of production involved in making a good are available. This means they can all be changed.
• The short run is defined as being a period of time when at least one factor of production is fixed
• The market supply curve can be derived from the individual supply curves of sellers in the market 
• Individual supply curve - the supply curve of an individual producer
• Market supply curve - the supply curve of all producers
• Price elasticity of supply - a measure of the responsiveness of quantity supplied to a change in price
• Producer surplus - the difference between the market price which firms receive and the price at which they are prepared to supply 
• Supply - the quantity of goods that suppliers are willing to sell at any given price over a period of time