2. Supply

What is supply?

The quantity of goods that sellers are prepared to produce at any given price.

What is the law of supply?

If prices rise, supply rises.

If prices fall, supply falls.

What does the supply curve look like?

What does price change result in on the supply curve?

Movement across the curve.

What factors affect a change in supply?

1. Cost of production

2. New technology

3. Prices of other goods

4. The government - legislation, tax

5. Number of producers in the market

6. The weather - droughts etc

How does cost of production and prices of other goods affect supply?

Fall in costs of production lead to increased supply.

Firms may change what goods/services to offer using the same resources if they can get more revenue e.g a gym offers pilates instead of yoga.

What is equlibrium?

A state of equality or balance between market supply and demand.

Draw the supply and demand curve.

What is excess supply?

A surplus when the quantity of a good or service supplied exceeds the quantity of demand.

What is excess demand?

When the price of a good is lower than the equilibrium price and therefore demand exceeds supply.

Draw excess supply and demand on a supply and demand curve.

How does the market self correct and bring a business back into equilibrium?

The business will have excess supply and be forced to drop prices to meet equilibrium OR

Consumers will be willing to pay a higher price.

What does diminishing marginal utilities mean?

The more you consume the more the benefit decreases.

What is a consumer surplus?

The difference between what a consumer would pay and what they actually pay.

What is a producer surplus?

The difference between what producers are willing/ able to supply a good for and what price they recieve.

Draw consumer and producer surplus on the demand and supply curve.