2.3.4: Supply

Supply

  • It shows the relationship between price of a good and the quantity firms are willing and able to offer for sale.

  • As the price increases, suppliers are generally more incentivized to produce and sell larger quantities, reflecting a direct correlation between price and supply.

  • So as the independent variable, price, increases, so does the quantity, and vice-versa

Change in Supply

  • Something other than price can affect the quantity of the good firms supply

  • For example, if the price of plastic increases for juice bottlers, so their costs will increase, thereby decreasing the quantity at every price; shifting the curve to the left.

Price Elasticity of Supply

  • Find it by dividing the % change in quantity supplied by % price change.

  • If % of quantity supplied > % price, then elastic, which indicates that producers are responsive to price changes.

  • Conversely, if % of quantity supplied < % price, then inelastic, meaning that producers are less responsive to price fluctuations.

Quantity Supplied

  • The amount of a good or service producers are willing to sell at some specific price

  • Law of Supply: Other things being equal, the price and quantity supplied of a good are positively related.

T.R.I.C.E.

  • Is an acronym for the supply shifters

  • Technology: Advances in technology can lead to more efficient production methods, reducing costs and increasing supply.

  • related prices: Changes in related prices, such as substitutes or complements, can influence supply levels, as higher prices for substitutes may incentivize producers to increase output.

  • input prices: An increase in input prices, such as raw materials or labor costs, can decrease supply as it becomes more expensive for producers to manufacture goods.

  • Competition: In a competitive market, the number of firms entering the industry can increase supply, as new entrants typically seek to capitalize on potential profits, driving prices down and enhancing consumer choice.

  • Expectations: Expectations about future market conditions can significantly impact supply; if producers anticipate higher prices in the future, they may withhold current supply to sell at a higher price later.