Micro-economics: The Theory of…
Micro-economics: The Theory of Supply
Causes of Shifts in the Market Supply Curve:
3. Advances in production technologies
- Outward shift in supply
4. The entry of new producers
- Into the market would cause and outward shift.
2. A fall in the exchange rate
- Causes an increase in prices of imported components and raw materials
5. Favourable weather conditions
- E.g for agricultural products
1. Changes in the unit costs of production
- Lower unit costs means that a business can supply more at each price-for example higher productivity. - Higher unit costs cause an inward shift of supply.
6. Taxes, subsidies and government regulations
- Indirect taxes cause an inward shift supply. - Subsidies cause an outward shift of supply - Regulations increase costs causing an inward shift of supply
Where a firm produces more than one product together
The quantity if of good or service that a producer is willing and able to supply onto the market at a given price in a given time period.
A Supply Curve:
shows a relationship between market price and how much a firm is willing and able to sell.
Market supply: Total supply brought to the market by producers at each price.
The difference between the price received by firms for a good or service and the price at which they would have been prepared to supply that good.
An organisation that brings together factors of production in order to produce output.
The cost of producing an additional unit of output.
The basic law of supply
is that as the price of a product rises, so businesses expand supply to the market. There are three main reasons for the law of the supply.
2. Production and Costs
- When output expands, a firms production costs tend to rise, therefore a higher price is needed to cover these extra costs of productions. this may be due to the effects of diminishing returns as more factor inputs are added to production.
3. New Entrants Coming into the Market
- Higher prices may create an incentive for other businesses to enter a market leading to an increase in total supply.
1. The Profit Motive
- If the market price rises following an increase in demand, it becomes more profitable for businesses to increase their output.
A situation in which a firm can use its factors of production to produce alternative products
Where a product produced by a firm serves more than one market.