Economics: Law of Supply Flashcards

Study Notes

Supply Overview

Supply refers to the amounts of a product that producers are ready to offer for sale at various prices over a specific time period.
It is represented as a schedule or curve indicating potential availability at each price point.

Law of Supply

The law of supply asserts that an increase in a product's price leads to a greater quantity supplied, while a decrease in price results in reduced quantity supplied.
This relationship is direct, meaning price adjustments affect supply levels.

Supply Determinants

Several factors influence supply, collectively referred to as supply determinants. Key determinants include:
- Resource Prices
- Technology
- Taxes and Subsidies
- Prices of Other Goods
- Producer Expectations
- Number of Sellers in the Market

Change in Supply vs. Change in Quantity Supplied

Change in supply indicates a shift in the entire supply curve, showing a different quantity supplied at every price point.
Change in quantity supplied reflects adjustments in the amount offered due to variations in the product’s price, without shifting the supply curve.

PRENTT Acronym

PRENTT serves as a mnemonic for remembering key supply determinants:
- Prices of resources
- Expectations
- Number of sellers
- Technology
- Taxes and subsidies

Resource Prices

Resource prices are influenced by the factors of production, affecting overall supply and costs.

Technology

Advancements in technology enhance productivity, leading to increased output capacity for producers.

Taxes

Higher taxes reduce profits for producers, while lower taxes can stimulate supply by increasing profitability.

Subsidies

Government subsidies support producers by funding their operational costs, incentivizing supply expansion.

Prices of Other Goods

When demand for one product rises, its price typically increases, leading to an uptick in its supply, while the supply of alternative products may decrease as resources are reallocated.

Expectations

Producers respond to market expectations; if they anticipate higher sales for a product, they will increase production accordingly.

Number of Sellers

An increase in the number of firms in a market contributes to greater overall supply, whereas a reduction in suppliers diminishes supply levels.

Description

Test your knowledge on the Law of Supply with these flashcards. Each card provides essential definitions to help you grasp the supply concepts in economics. Ideal for students looking to strengthen their understanding of supply dynamics.