Supply

Supply

·       Supply - the quantity of a good or service that firms are willing and able to sell at any possible price in a given period.

Law of Supply: ceteris paribus, as the price of a good increases, the quantity supplied increases. So there is a direct relationship between quantity supplied and price.

·       
      Movements along (expansion/contraction)

A movement up the supply curve is an expansion (both price + quantity increase)

A movement down the supply curve is a contraction (both price + quantity decrease)

·       Factors that shift the curve outwards:

-        A decrease in cost of production, which can be caused by technological innovation, or a decrease in the price of land, capital, labour.

-        A decrease in the price of supply substitutes. Supply substitutes are goods and services that can be produced with similar factors of production (e.g corn and wheat)

If the price of corn decreases, firms will increase the supply of wheat, as it is more financially attractive, and firms are driven by profit.

-        An increase in the price of a joint supply good.

Joint supply are goods and services that can be produced together. (e.g price of beef rises, more cattle are raised, more are killed and more leather can be produced.)

-        A decrease in taxes, as there is more incentive to produce if goods don’t get taxed as heavily.

-        An increase in subsidies (a sum of money granted by the government to help an industry/business keep the price of a commodity or service low), as firms gain from making each additional good.

-        If producers expect their prices to increase in the near future, they will produce more, so supply will increase, but not necessarily sell right away.

NB: only for non-perishables.