Supply and Its Determinants

The Law of Supply

• Definition: As the price of a good rises, the quantity supplied will increase, and vice versa, ceteris paribus. It is represented by an upward-sloping supply curve.

Individual vs. Market Supply

• Individual Supply: Quantity a single firm supplies at various prices.

• Market Supply: The sum of all individual suppliers' quantities at each price level, derived by horizontally adding individual supply curves.

Change in Quantity Supplied vs. Change in Supply

• Change in Quantity Supplied: A movement along the supply curve due to a change in the product's own price.

• Change in Supply: A shift of the entire supply curve (left for decrease, right for increase) caused by non-price determinants.

Determinants of Supply (Non-Price Factors)

• Taxes: Higher taxes decrease supply.

• Subsidies: Subsidies to producers increase supply.

• Resource Costs: Decreased costs increase supply; increased costs decrease supply.

• Technology: Improved technology increases supply.

• Number of Sellers: An increase in sellers increases market supply.

• Seller Expectations: Expecting future price rises decreases current supply; expecting future price falls increases current supply.

Relationship Between Price and Quantity Supplied

• There is a direct relationship: as price increases, quantity supplied increases.