1.2.4 Supply

Definition

The quantity of a good or service that producers are willing and able to sell at various prices over a given period of time

Law of Supply

There is a direct (positive) relationship between price and quantity supplied

Determinants of supply

ASCENT

A

Advances in technology - improvements in production methods increase efficiency and productivity, reducing unit costs and allowing firms to supply more. OUTWARD 

S

Subsidies - govt. payments reduce costs, encouraging firms to increase output.

OUTWARD

C

Costs of production - Lower input costs (wages, raw materials, energy) reduce unit costs and increase supply.

LOWER COSTS = OUTWARD

E

External shocks - unexpected events can disrupt production and decrease supply.

N

Number of producers - More firms entering a market increases total market supply; firms leaving the market decrease supply

T

Taxes (indirect) - e.g. VAT, excise duty, increase production costs and reduce supply; lower taxes increase supply.