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The theory of supply

The theory of supply. Define the theory of supply. List the 3 laws of supply. As price rises, supply will rise. As price falls, supply will fall. The supply curve slopes upwards from left to right . (3 marks).

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The theory of supply

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

  2. 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) Movements along the supply curve(an extension in supply) p s extension in supply p2 p1 Qs Qs1 Qs2 (12 marks)

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

  4. 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)

  5. 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)

  6. A positive change in the determinants of supply p 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)

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

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

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