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Section 2 - Competitive markets - Supply - Coggle Diagram
Section 2 - Competitive markets - Supply
Supply
Supply is the quantity of a good/ service that producers supply to the market at a given price
Supply curves
Shows the quantity of the good/ service that would be supplied at a particule price
An increases in price causes an extension in supply
A decreases in price causes a contraction in supply
Usually slop upwards, the higher the price charged for a good, the higher the quantity supplied
Producers and sellers aim to maxmize profits, higher prices lead to higher profits
Changes in supply
Curve moves to the left when there's a decrease in the amount supplied at every price
Supply curve shifts to the right when there's an increase in amount supplied at everyprice
Reasons
Increases in costs of production cause a decrease in producer's profits and cause a left shift
Decrease in cost production causes a shift to the right
Technological improvements reduce cost of production so increase supply
Increase productivity of FOPs means companies will get more output from a unit of the factor
Indirect tax increases costs, so supply reduces
An increase in teh number of suppliers in a market will increase supply to that market
Occur when there are changes in factors affecting producer's willingness and ability to purchase goods/ services
Price elasticity of supply
How the quantity supplied of a good responds to a change in price
PES = % change in quantity supplied/ % change in price
Elastic
% change in price will usually cause a greater % change in the quantity supplied
PES > 1
Higher PES, more elastic supply
Perfect elastic supply has a PES of infinity, so any fall in price means the quantity supplied will be zero
Inelastic
0 < PES < 1
% Change in price will usually cause a smaller % change in the quantity supplied
Perfect inelastic supply has a PES of 0, so any change in price will have no effect on the quantity supplied
Unit Elasticity of supply
% change in quantity supplied = % change in price
High PES
Important to firms as they aim to respond quickly to changes in price and demand
Making their supply as elastic as possible means they can adapt to changes quickly
Other factors
Period of unemployment - supply is more elastic as its easier to attract new workers
Perishable goods have an inelastic supply as they cannot be stored for long
Industries with mobile FOPs tend to have more elasticity of supply
Spare capactiy - spare resources can easily be utilised
Barrier to entry - higher barrier to entry means supply is more inelastic as its harder for new firms to enter and supply the market