Supply

Supply

• Definition of Supply

  • Supply is the quantity of a good or service that producers are willing and able to offer at various prices during a specific time period.

Law of Supply

• Direct Relationship Between Price and Quantity Supplied

  • There is a positive relationship between price and quantity supplied.

  • As the price of a good rises, the quantity supplied will usually also rise (ceteris paribus).

  • Example: Higher price = Higher Quantity Supplied

  • Reason: Opportunity for Profit

Supply Schedule

• Individual Supply Schedule

  • Lists quantity of curry produced at various price points (in THB):

    • Price (THB): 150, 120, 90, 60, 30, 0

    • Quantity of Curry: 5, 4, 3, 2, 1, 0

• Market Supply Schedule

  • Aggregates supply from multiple suppliers (Company A & B) at different price points:

  • Price (THB): 150, 120, 90, 60, 30

  • Coupled supply quantities from both companies (e.g., Company A and B produce a combined total of curry).

Movements and Shifts on the Supply Curve

• Change in Quantity Supplied

  • Refers to movements along the supply curve due to changes in price.

  • Example: As price increases from P1 to P2, quantity supplied increases from Q1 to Q2.

• Change in Supply

  • Refers to a shift of the entire supply curve due to non-price determinants.

  • Example: A change in production costs can cause a shift right (increase) or left (decrease).

Supply Shifters

1. Costs of Production

   • Changes in the cost of factors of production (FOP) directly influence supply.

   • Example: An increase in the price of wheat likely decreases the supply of pizza.

2. Technology

   • Improvements in technology can boost productivity, increasing supply.

   • Example: Use of tractors significantly enhances farm productivity.

3. Future Expectations

   • Expectations about future prices affect current supply.

   • Example: Anticipating price increases may lead producers to withhold products (hoarding).

4. Related Goods

   • Producers choose what goods to produce based on market prices.

   • Joint Supply: When producing one good means producing another (by-product).

   • Competitive Supply: Production choices that limit the availability of other goods.

Application and Practice

• Scenario Analysis

  • Example situations that influence supply:

    • Virus affects livestock, increasing prices.

    • Technology advances in tortilla production reduce costs.

    • Government interventions (taxes/subsidies) influence overall supply.

• Evaluate each scenario for impacts on supply (increase/decrease and the determinant involved).

Recap and Review

• Understanding the dynamics of supply—definitions, shifts, and determinants—is critical for analyzing market behavior.