Questions and Answers
What is supply?
A schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period.
What is the law of supply?
The principle that an increase in the price of a product will increase the quantity supplied, and conversely for a price decrease.
What are supply determinants?
Resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers in the market.
What does a change in supply refer to?
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What is a change in quantity supplied?
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What does PRENTT stand for?
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How do resource prices affect supply?
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How does technology influence supply?
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How do taxes affect supply?
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What are subsidies?
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How do prices of other goods affect supply?
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What is the role of expectations in supply?
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What is the effect of the number of sellers on supply?
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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.
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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.
