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NCEA level 1 supply external for economics
Law of Supply
Individual Supply |
the quantity of a good or service that a producer is willing and able to produce at a range of prices. |
The Law of Supply |
states that as price increases, quantity supplied increases, assuming ceteris paribus*, vice versa. |
This means that there is a positive relationship between price and quantity supplied, which means as one rises, the other will also. |
*Ceteris paribus means that any other factor affecting the supply of that good is held constant.
Key Definitions
Production |
the process of transforming inputs into goods |
Productivity |
the rate of output, or output divided by input |
Profitability |
how much profit a good is making- profit=revenue-costs |
Technology |
methods, processes, and man-made capital used in the production process |
Tariff |
a tax on imported goods |
when profitability increases, the difference between costs and revenue is greater.
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Related Goods
Goods that can be produced using the same or similar resources. Which good is produced depends on which has a relatively higher price. |
For example, apples and pears are related goods because they can be supplied in place of each other. This is because they take similar resources to produce: orchid, pickers, fertiliser, etc. |
Merit and Demerit Goods
-The government can encourage the production of merit goods by subsidising producers: |
This means they make payments to firms to help them reduce their cost of production. |
This would increase supply and shift the supply curve right. |
-The government can also discourage the production of demerit goods by imposing indirect taxes: |
This means firms are charged extra to produce these products so cost of production increases. |
This would decrease supply and shift the supply curve left. |
Merit goods are goods that the government deem beneficial for society eg. vaccinations
Demerit goods are goods that the government deem harmful for society eg. cigarettes
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Non-Price Factors
Factors that influence the amount producers choose to supply, not related to price. |
Internal Factors include: (factors within business control) |
-costs of production |
-price of related goods^ |
-level of technology |
-productivity |
^when mentioning related goods, describe how resources are diverted to the relatively more profitable good. |
External Factors include: (factors outside business control) |
-political |
-environmental |
-legal |
-trade restrictions* |
Factors that may cause an increase in supply |
-resources required to produce the good decrease in cost |
-worker training advances, allowing for increased employee productivity |
-the selling price of a related good decreases |
Factors that may cause a decrease in supply |
-resources required to produce the good increase in cost |
-minimum wages for workers increase |
-it is not peak-season for the demand of this product (eg. bikinis in winter) |
*you can remember external non-price factors with the acronym PELT.
-Price factors are shown as a movement along the supply curve
-Non-price factors are shown as a shift in the supply curve
when non-price factors cause the supply curve to shift rightwards, the quantity supplied increases at each and every price.
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