A Level Microeconomics 4 - Supply, Pes And Equilibria.

Front 1

What is supply?

Back 1

The quantity of goods and services that sellers are willing and able to sell at any given price over a period of time.

Front 2

As the price of a product rises, the quantity supplied of a product...

Back 2

Will usually rise, Ceteris Paribus.

Front 3

The relationship between price and quantity supplied is ...

Back 3

Positive.

Front 4

What does the supply curve assume?

Back 4

That firms aim to maximise profit.

Front 5

To what sectors does the supply curve not apply?

Back 5

The public and not-for-profit sectors, because those organisations don't have the profit motive.

Front 6

A movement along the supply curve is called...

Back 6

An extension or a contraction.

Front 7

If price rises from P1 to P2, this will cause...

Back 7

An extension in supply from Q1 to Q2

Front 8

What is a shift in supply?

Back 8

When, at any given price, more or less is demanded. This is called an increase or decrease in supply.

Front 9

Draw an increase in supply.

Back 9

Front 10

Draw a decrease in supply.

Back 10

Front 11

What are the determinants of supply?

Back 11

Any factors (other than price) that affect supply and chase a shift in the supply curve:

Costs of factors of production.

Productivity of factors of production.

Indirect taxes and subsidies (e.g. VAT)

Seasonal changes (affects agricultural products)

Technology

New firms entering the market.

Prices of other goods.

Front 12

What is competitive supply?

Back 12

When a rise in the price of one product (Good A) will cause the supply of that product (Good A) to extend and the supply of another product (Good B) to decrease.

Front 13

Give an example of competitive supply.

Back 13

Grain for food and grain for biofuels.

Front 14

What is joint supply?

Back 14

When a rise in the price if on product (Good A) will cause the supply of that product (Good A) to extend and the supply of another product (Good B) to increase.

Front 15

Give an example of joint supply.

Back 15

Byproducts e.g. petrol and paraffin.

Front 16

Give an example of composite supply.

Back 16

Raw material markets. E.g. A fall in demand for milk to make butter will lead to an increase in supply of milk to make cheese.

Front 17

What is composite supply?

Back 17

This is when a product is demanded in more than market. This means that a fall in demand in one market will lead to an increase in supply to another.

Front 18

PES = ?

Back 18

%∆QS ÷ %∆P

Front 19

What does PES measure?

Back 19

The responsiveness of quantity supplied to a change in price.

Front 20

What does a graph with perfectly elastic PES look like?

Back 20

Front 21

What does a graph with elastic supply look like?

Back 21

Front 22

What does a graph with unitary supply look like?

Back 22

Front 23

What does an inelastic supply curve look like?

Back 23

Front 24

Can PES be negative?

Back 24

No, because price and quantity supplied have a positive relationship.

Front 25

For what values of PES is supply inelastic?

Back 25

PES < 1

Front 26

For what values of PES is supply elastic?

Back 26

PES > 1

Front 27

What is the PES of all these supply curves?

Back 27

They all have unitary supply.

Front 28

Any supply curve that passes through the y-axis will be...

Back 28

Elastic

Front 29

Any supply curve that passes through the origin will have...

Back 29

Unitary elasticity

Front 30

Any supply curve that passes through the x-axis will be...

Back 30

Inelastic

Front 31

What are the determinants of PES?

Back 31

Time period - the shorter the time period, the more difficult firms find it to increase supply. Supply will tend to be inelastic in the short run.

Availability of stocks/spare capacity - If the product cannot be stored then supply will tend to be inelastic. If firms have little spare capacity supply will tend to be inelastic.

Availability of factors of production - if the supply of FoP is relatively inelastic then the supply of the good/service will be too. (E.g. skilled labour/limited machinery).

Front 32

What is a market?

Back 32

Any arrangment is which buyers and sellers interact to exchange goods and services (including factor services).

Front 33

When does market equilibrium occur?

Back 33

When demand equals supply.

Front 34

What does a market at equilibrium look like?

Back 34

Front 35

When demand and supply are not equal a market is in a state of...

Back 35

Disequilibrium

Front 36

If prices are above the equilibrium and start to fall, what will happen to demand and supply?

Back 36

Demand will extend, supply will contract.

Front 37

If prices rise, what happens to demand and supply?

Back 37

Demand contracts and supply extends.

Front 38

When price is below the equilibrium, what situation does this cause?

Back 38

A shortage/excess demand.

Front 39

When price is above the equilibrium, what situation will this cause?

Back 39

Excess supply/surplus.

Front 40

What is the significance of PES to firms?

Back 40

Firms with relatively elastic PES can more quickly respond to changes in price.

If PES is inelastic, firms may not be able to adjust Quantity supplied easily and this may prevent them benefiting from potential profits.

Front 41

What is the significance of PES to consumers?

Back 41

Consumers benefit if PES is elastic because increases in demand lead to smaller increases in price. (However, if demand falls decreases in price will also be small).

Front 42

What evaluation points could I make about the usefulness of PES?

Back 42

The data is estimated and liable to innacuracy.

The data is based on past estimates and may not hold true over time.

Ceteris Paribus may by violated (use an example here).

Depends on extent of change in price.