By Sue Grant, Richard Young (auth.)
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Extra info for Economics a Level
This means the amount that each individual firm would supply at each price is added together and then plotted on a supply graph. For example Figure 3 shows the supply curve of three firms (this is obviously a simplification because a perfectly competitive industry would contain far more firms). At a price of £1 the market supply is 20 (7 + 7 + 6), at £2 it is 30 (11 + 10 + 9) and at £3 it is £42 (15 + 14 + 13). 1 Fa • • only one market price where the amount that producers want to sell equals the amount that consumers want to buy.
3 An ad valorem indirect tax. Area P2P I AB equals the total amount of tax revenue raised Price instability • • demand will have stable prices from year to year. Products with unstable conditions of supply and demand will experience price fluctuations from year to year. Products with seasonal variations in demand, such as hotel accommodation, tend to be price-unstable. Agricultural prices tend to be unstable because: (a) supply changes from one time period to the next because of variable weather conditions; (b) the effects of changes in supply is amplified by price-inelastic demand (see Chapter 5); (c) the effect of changes in demand is amplified by price-inelastic supply; (d) supply lags (delays) exist between the decisions to produce and the produce coming onto the market.
The increase in demand has the effect of shifting the demand curve to the tight, to D 1• The price of apples rises from P to P 1, causing an expansion along the supply (S) curve from A to B. Initial analysis suggests that an increase in demand raises the price of a particular good. An increase in the price of a good also affects the amount demanded by consumers. However, unlike an increase in demand, an increase in price does not shift the demand curve for the good. Again using apples as an example, an increase in price results in a fall in the quantity demanded, causing a contraction along the demand curve from A toBin Figure 3.