Define the theory of supply

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Presentation transcript:

Define the theory of supply List the 3 laws of supply The amount producers are able and willing to offer for sale at a given price over a period of time. (5 marks) As price rises, supply will rise. As price falls, supply will fall. The supply curve slopes upwards from left to right. (3 marks)

Movements along the supply curve (an extension in supply) Movements along the supply curve are caused by a change in price. An extension in supply is brought about by a rise in price. Manufacturers are willing to supply more as a greater profit can be made at the new price. (5 marks) p s extension in supply p2 p1 Qs Qs1 Qs2 (12 marks)

Movements along the supply curve (a contraction in supply) Movements along the supply curve are caused by a change in price. A contraction in supply is brought about by a rise in price. Manufacturers will cut supply as less profit is made at the new price. (5 marks) p s contraction in supply p1 p2 Qs Qs2 Qs1 (12 marks)

Shifts in the supply curve The determinants of supply are forces behind market supply. A change in any one of these will affect market supply . Any changes in the determinants of supply will cause the entire supply curve to shift across. positive change in the determinants of supply will cause the supply curve to shift across to the right. A negative change in the determinants of supply will cause the supply curve to shift across to the left. (5 marks)

List the determinants of supply 1. A change in factor prices. A change in the availability of raw materials. A change in technology. A change in the number of firms in the market . A change in government legislation. (5 marks)

A positive change in the determinants of supply Draw a diagram illustrating the impact of a positive change in the determinants of supply, that is more is supplied at each price s1 s2 p1 Qs qs1 qs2 (11 marks)

A negative change in the determinants of supply Draw a diagram illustrating the impact of a positive change in the determinants of supply, that is more is supplied at each price p s2 s1 p1 Qs qs2 qs1 (11 marks)

Define aggregate supply The total supply of all goods and services in an economy. (3 marks)