3.1.2.3 THE DETERMINANTS OF THE SUPPLY OF GOODS AND SERVICES

Define market supply

The total quantity of a good or services that all producers in a market are willing and able to sell at each possible price over a given period of time

How is it found?

By adding together the individual supply curves of all firms in the market

Define profit

The difference between a firms total revenue and total costs, it represented the financial gain the firm earns from producing and selling goods or services

Profit calculation?

Total revenue - total costs

Define revenue

The total amount of money a firm receives from selling its output

Revenue calculation?

Selling price x quantity sold

Explain the relationship between price and quantity in terms of supply?

As quantity increases, quantity of supply increases

What relationships does this indicate?

A linear and positive relationship

Why would an increase in the market price of a product, increase the supply?

• when the market price rises

• firms can earn more revnue per unit sold

Higher prices - higher profit per unit - higher quantity supplied to maximize the profit

Examples of things that shift the supply curve?

• costs of production (wage costs, raw materials costs, energy costs, costs of borrowing)

• technical progress

• taxes imposed on firms (VAT, excise duties, business rates)

• subsidies granted by the government to firms

What is "business rates"?

Council tax for businesses

If a subsidy is introduced, what does this mean for costs?

Costs would decrease - as well as prices (benefit for the business and the consumer)

Explain how higher prices imply higher profits and that this will provide the incentive to expand production?

• higher prices - higher profit per unit sold - firms are then motivated to maximize profit - encourages more production - supply increases

Is the supply curve upward or downward sloping?

Upwards

Is there a positive or negative relationship between price and quantity?

Positive

Does a fall in energy bills, cause a shift in or out?

Out

Does a rise in wages, cause a shift in or out?

In

Does an introduction of a subsidy, cause a shift in or out?

Out

Does a rise in indirect taxes, cause a shift in or out?

In

In terms of businesses' wanting to maximize, what are 3 types?

• profit maximize

• revenue maximize

• sales maximize

If prices increase, what happens to supply?

Supply tends to increase (so business can maximize profit and sales)

Examples of direct tax?

• income tax

• corporation tax

In terms of income tax, what is the income amount everyone does not get taxed on?

£12,580

Is this regressive or progressive?

Can be seen as both

Do the richest tend to save or spend?

Save

Do the poorest tend to save or spend?

Spend

Examples of indirect tax?

• VAT

Why is VAT an indirect tax?

You don't have to pay it unless you buy a good

If costs, taxes and wages decrease, does this cause a shift in or out of supply?

The supply curve will shift outwards

What can prices and wages be described as?

Sticky

What does this mean? (+Example of this)

Once something has been set (price, wage), it is very hard to change

Once the minimum wage has been set, it is hard for this to be changed, and increased or decreased (altered up or down)