Supply – CPA Exam Definitions

Supply CPA Exam

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Supply in economics refers to the quantity of goods or services that producers are willing and able to offer for sale at various price levels during a specific time period. The concept of supply is based on the relationship between price and production: as the price of a good or service increases, producers are generally more willing to produce and sell larger quantities, and vice versa.

The supply of a product or service depends on several factors, including:

  • Production costs: The cost of producing a good or service, including the costs of raw materials, labor, and capital, directly influences the level of supply. If production costs decrease, producers can supply more of the product at a given price, and if production costs increase, they may supply less.
  • Technology: Technological advancements can increase the efficiency of production, allowing producers to supply more goods or services at lower costs. This can lead to an increase in supply.
  • Prices of related goods: The supply of a good or service may be influenced by the prices of related goods. For example, if the price of a substitute product increases, producers may be more willing to supply larger quantities of the original product, as it becomes relatively more profitable.
  • Government policies: Taxes, subsidies, and regulations can affect the supply of goods and services. Taxes increase production costs and may reduce supply, while subsidies can lower production costs and increase supply. Regulations can also impact supply by imposing restrictions or requirements on production.
  • Producer expectations: If producers expect prices to increase in the future, they may hold back some of their current production and supply less in the present. Conversely, if they expect prices to decrease, they may increase their current supply to take advantage of higher prices.

Some examples of supply in economics include:

  • A farmer who produces and sells corn: The supply of corn depends on factors such as the cost of seeds, fertilizers, and labor, as well as weather conditions and market prices for corn.
  • A smartphone manufacturer: The supply of smartphones depends on factors such as the cost of components, labor, and technology, as well as consumer demand and competition in the market.
  • A service provider, such as a plumber or a hairdresser: The supply of their services depends on factors such as their skill level, the cost of materials and tools, and the prices they can charge for their services.

In summary, supply in economics refers to the quantity of goods or services that producers are willing and able to offer for sale at different price levels. Factors such as production costs, technology, prices of related goods, government policies, and producer expectations can influence the level of supply.

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