Supply

Supply- the quantity of a good or service that all firms

in a particular industry are willing and able to offer for
sale at different price levels at a given point of time. It
represents the market supply of a product, which is
the sum of the individual firm supplies of individual
producers at the various price levels.
Factors affecting market supply 7.1
The price of a good or service itself
The market price of the good or service will influence
the producers ability and willingness to supply it. If
the price is too low, come producers may not be able
to cover the costs of production and will not supply
them.
The future price of the good or service also influences
the level of supply. If a supplier believes the price will
rise in the future (due to rise in demand as a result of
changes in consumers tastes and preferences)the
supply will increase due to the possibility of increased
profits arising from the supply of goods. The reverse is
expected as prices fall.
The price of other goods and services
The quantity of a good or service supplied at any time
will be affected by the price of other goods and
services. For example; firms will choose the good that
is increasing in price over the good that has a
relatively sustained price in order to maximise profits
The state of technology
Improvements in technology will lower production
costs. This enables firms to supply more goods at a
given price. They also allow firms to quickly respond
and address the change in demands with efficiency.
Changes is the cost of factors of production
If any factor of production falls in price, firms will face
a cost saving advantage of supplying more goods at
the same cost.

However, if any factor of production rises in price,
firms will face some difficulties in supplying the same
quantity and therefore, the supply will decrease.
The quantity of the good available
The supply of good can be strained by the quantity of
it available. This generally applies to non-renewable
resources, limited edition luxuries, antiques, and
exclusive goods that only existed for a period of time.
In many industries, the number of suppliers also
affects the good or service available. (as more
suppliers increase the supply also increases etc.) E.g. if
there is a boom in one area such as the mining
industry, the supply of natural resources will increase.
Climatic and seasonal influence
Climatic and seasonal influence will affect agricultural
supplies


























A graphical representation of the supply schedule








Movements along the supply curve 7.2
Changes in price: movements along the supply curve
Assuming that all factors remain constant except for
price, it is possible to construct a supply schedule
showing the quantity of goods that will be supplied
over a range of prices (at any given point in time)

The supply curve
It is typically
1. an upward slope
2. Goes from left to right
3. Portrays the relationship between price and
quantity
*A change in the price of a good = change in the
quantity (supplied in the same direction as the price
change)









Price ($) Quantity supplied
(pair of shoes)
100 200
80 160
60 120
40 80
20 40

According to the law of supply, as the price of a certain
product increases, the quantity supplied by producers
will increase (since they want to make maximum profits)
this is because
1. For firms already producing in that industry the
good becomes more profitable and therefore
they will supply more of it
2. The rising price making this good profitable will
attract new firms who will want to enter the
industry, cause the supply of this good to rise












Movements along the supply curve
From a change in price, there is movement in the
supply curve (contractions and expansions)
Contraction: when the quantity of supply falls as a
result of a fall in price. (shown by a downward
movement along the supply curve)
e.g. when the price drops from P1 to P2, the quantity
supplied also drops from B to C.
Expansion: when the quantity of supply increases as a
result of the price increasing (shown by an upward
movement along the supply curve)
Shifts of the supply curve 7.3
This is caused by an external factor other than price
Increase in supply
A shift towards the right
1. An increase in supply means that firms are
willing and able to supply more at each
price level as before
As S0 moves to S1, the quantity produced
at the expense of P1 increases to Q1
2. An increase in supply also means that
firms are willing to supply a given quantity
at a lower price level than before
As S0 shifts to S1, Q1 is produced at a
cheaper rate of P1
Decreases in supply
A shift towards the left
1. A decrease in supply means that firms are
willing and able to produce less of a good at
any given price
As S1 shifts to S0, the firm produces a
smaller quantity- Q0 at the same price of
Q0
2. A decrease in supply also means that firms are
willing and able to supply a given quantity at a
higher price than before.
The firm produces Q0 at a higher expense
of P0 as the supply has decreased


Factors that cause shifts in the supply curve
Increase Decrease
Fall in the price of
other goods
makes the product
more profitable than
others
A rise in the price of other
goods
Improvement in the
technology used to
produce the good
Rise of cost of factors of
production
A fall in the cost
factors
e.g. labour and
capital
A decrease in the quantity
of resources available
An increase in the
quantity of resources
available for
production
Regulations restricting the
sale of a good
e.g. fire works
Climatic conditions
an seasonal change
(for agriculture)
Climatic
conditions/seasonal
change that is less
favourable to produce the
good.

Price elasticity of supply 7.4
Measures how responsive the quantity of supply is in
relation to price change
The two extremes of elasticity in supply are
1. perfectly elastic supply
2. perfectly in elastic supply
Perfectly elastic supply
- when a firm will pay a fixed price for every
quantity given and will not pay less or more



Perfectly inelastic supply-
- When a firm supplies a fixed quantity at every
given price.


Factors affecting the elasticity of supply
Time lags after a price change
The price of a good will is more elastic as producers
are given more time to respond to the price change.
Ability to hold and store stock
The supply will be more elastic in price when it is
easier to stock.
e.g. fruit will have a sustained elasticity in supply since
it cant be stored for a long time whereas furniture
will have a more elastic supply due to its durability
Excess capacity
Excess capacity: when a firm isnt using its resources
to its maximum capacity
Supply will be elastic if the firms have excess capacity
because they can increase their supply according to
the price. However, if resources are already being fully
employed, there will be very little elasticity in supply.