Understanding law of supply

supply

the amount of goods or services produced by firms and offered for sale

what does the law of supply state?

high prices give businesses an incentive to produce; low prices cause producers to reduce production

what is the relationship between price and the quantity supplied of a product

direct (positive)

shift to the right __

increase in the ability to supply which is good for the firm, and easier to produce

shift to the left __

decrease in the ability to supply which is bad for the firm, and harder to produce

1. change in costs of productive resources + examples

if any resources used to produce a good increases, then this will lead to a reduction in their ability to supply (land)
dough for pizza or minimum wage (labour cost)

2. changes in technology

technology allows us to increase our capacity to produce and increase supply

3. change in producer expectations

if suppliers beleive a market will be strong, they will buildup their supply of a product

4. natural conditions
   what is a supply shock?

a sudden shortage of a good due to a natural disaster or human error

whats an example of a decrease in natural conditions?

bushfires in australia destroys large areas of farmland and vineyards → reduce supply of grapes and wheat

5. number of suppliers

more firms in the market increase supply; fewer firms reduce supply

6. government policies (examples)

higher tax (increase costs), subsidies (lower costs)

7. price of related goods 

quantity supplied

a change in the amount a supplier will produce as a result of a change in price (movement along the curve)

supply

a change in the amount a supplier can produce as a result of a change of factors that cause a shift in demand

draw a diagram of the difference between movement and shift along the supply curve