1.2.4 Supply

SUPPLY

• the ability and the willingness to provide a good or service at a particular price at a given moment in time

MOVEMENT

• movement along the supply curve, for example from A to B, is caused by a change in the price of the good

MOVEMENT- C+E

• CONTRACTION- movement from A to B- the quantity supplied falls because of a decrease in price.

• EXPANSION- movement from A to C- the quantity supplied rises due to an increase in price.

SHIFT

• shift of the supply curve, for example S1 to S2, is caused

  by a change in any of the factors which affect supply, the conditions of supply (CPWTGGTPE)

• A shift from S1 to S2 is a decrease in supply, because fewer goods are supplied at each and every price- e.g. at price P only Q2 goods are supplied rather than Q1 goods

• A shift from S1 to S3 is an increase in supply, as more goods are supplied at each and every price- now, Q3 goods are supplied at price P

COST OF PRODUCTION

• higher costs will decrease supply as there is less incentive to supply in that market due to lower profitability

PRICES OF OTHER GOODS

• JOINT SUPPLY-where the production of one good automatically causes the production of another good (e.g. beef and leather)

• COMPETITIVE SUPPLY- where the production of one good prevents the supply of another (e.g. rise in the supply of beef may cause a decrease in the supply of milk and a shift to the left)

WEATHER

• weather can determine crop yield/the size of harvest

• so good weather may increase supply

TECHNOLOGY AND PRODUCTIVITY

• new technology will lead to a fall in production costs as there is higher productive efficiency

• will encourage firms to lower prices or produce more goods for the same price and so the curve will shift to the right

• During war or natural disasters, companies may have to use less efficient technology so the supply curve will shift to the left as they produce less at each price

GOALS OF SUPPLIER

• If a supplier is motivated by helping society and providing a service, they may increase supply even when that doesn't provide extra profit

GOV LEGISLATION

• If the government passes laws that mean more cars have to have catalytic converters, supply of cars with catalytic converters will increase

• High levels of regulation may increase costs and so decrease supply.

TAXES AND SUBSIDIES

• A tax decreases supply and a subsidy increases supply by affecting the costs of production

PRODUCER CARTELS

• when many firms or countries operate together and decided how much to supply onto the market and hence determine price

ENTRY AND EXIT OF NEW FIRMS

• more firms in a market= supply increases

• less firms in a market= supply decreases

SUPPLY CURVE

supply curve is upwards sloping in most cases because:

• If prices are higher, firms will increase production to take advantage of the high profits they can make

• law of diminishing marginal returns

• Higher prices will encourage new firms to enter, because it seems more profitable, and so output will increase

• To increase production, you will need to use up more resources which will cost more and the only way that you will want to do this is if you are going to receive more money. This assumes that the cost of producing a unit increases as output increases (rising marginal cost).