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CH3 - The Law of Supply - Coggle Diagram
CH3 - The Law of Supply
Law of Supply
Supply -> business's willingness to produce particular produce supply because price covers all opportunity cost (choices)
when price increase, quanity supplied increase
-> devote more time and resources into producing / supplying
- higher profits - cover higher marginal opportunity cost of production
Quantity supplied -> supply at given price, taking everything that affects the willingness to supply work hours
*all opportunity cost are marginal cost and all marginal cost are opportunity cost
opportunity cost -> focuses on the value of the opportunity given up when making the decision
marginal cost -> focuses on the "addition" cost of the decision.use when describing about supply decisions
Marginal oppurtunity cost -> complete term for any cost relevant smart decisions (for labour and for business in how much money i need to recieve / supply for a certain product)
input are not all equally productive and there will have increased marginal opportunity cost where different importunity cost in different levels of the staff skill level in producing alternative services
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THE LAW OF SUPPLY
- business need to receive higher price to supply greater quantity.
Market Supply -> sum of supply of all business willing to produce a particular product / service
if the price of product / service rises, quantity of supplied increases
THE SUPPLY CURVE: shows relationship between price and quantity supplied
- over and down: supply curve
- up and over: marginal cost curve
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What can change supply
only price/ serive change, will change along the unchanged supply curve
if anything else change, will affect supply, shifting entire supply curve
Six ways to change supply and shift supply curve
1. technology
- increase productivity in technology (ex: machine) - reduce cost and produce things faster, increase market supply
2. environment
- extreme environmental weather can affect market supply (ex: storm may destroy crops)
3. prices of input
- lower input price of making something, business would want to produce more. increase in market supply (ex: low electrivity cost)
4. prices of related product . service produced5. expected future prices6. number of business
business will accept lower price when marginal oppurutnity cost of production are lower
- businesses are willing to accept lower prices and increase supply when their production costs, including opportunity costs, decrease.
decrease in price of product usually means decrease in quantity but sometimes in different cases, it may be because the input rate is lower, increases the quantity o product despite being in lower prices