1.2.4 Supply

• Movements Along a Supply Curve

  Movements along a supply curve occur when the quantity supplied changes in response to a change in the price of the good or service, while other factors remain constant.
• Shifts of a supply curve

  Shifts of a supply curve occur when factors other than price cause a change in the quantity supplied at every price level.

  
  

  A shift indicates a change in overall supply, not just a response to price changes
• What's the law of supply?

  The law of supply states that, all else being equal, as the price of a good or service increases, the quantity supplied also increases, and vice versa.
• Factors That May Cause a Shift in the Supply Curve (Conditions of Supply)(1)

  Production Costs:

  
  

  Changes in the cost of inputs such as labour, raw materials, and energy can affect supply

  
  

  Example: A significant increase in the price of crude oil can increase production costs for many industries, affecting their supply.

  
  

  Technological Advancements:

  
  

  Technological improvements can lower production costs and increase supply.

  
  

  Example: Advancements in manufacturing technology have reduced the cost of producing consumer electronics, leading to increased supply and lower prices.
• Factors That May Cause a Shift in the Supply Curve (2)

  Government Policies and Regulations:

  
  

  Government policies, such as taxes, subsidies, and regulations, can impact supply.

  
  

  Example: Subsidies to farmers may increase the supply of agricultural products, while strict environmental regulations may reduce the supply of certain industrial goods.

  
  

  Natural Disasters and Weather Conditions:

  
  

  Natural disasters, like hurricanes or droughts, can disrupt production and reduce supply.

  
  

  Example: A drought in a major wheat-producing region can reduce the supply of wheat, leading to higher prices
• Factors That May Cause a Shift in the Supply Curve (3)

  Changes in Expectations:

  
  

  Producers may adjust their supply based on their expectations of future prices or market conditions.

  
  

  Example: If farmers expect coffee prices to rise in the future, they may reduce current supply to take advantage of higher prices later.

  
  

  Government Intervention in International Trade:

  
  

  Trade policies, such as tariffs and quotas, can affect the supply of imported goods.

  
  

  Example: Imposing tariffs on steel imports can reduce the supply of foreign steel in the domestic market.

  
  

  Natural Resource Availability:

  
  

  The availability of natural resources, like minerals and fossil fuels, can impact supply.

  
  

  Example: Depletion of oil reserves can lead to a reduction in the supply of oil, affecting energy markets
• Movement in supply curve with factors (1)

  -COP: increase- shifts to the left, decrease- shifts to the right

  
  

  -Indirect taxes: increase- shifts left, decrease- shifts right
• Movement in supply curve with factors (2)

  -Subsidies: increase- shifts right, decrease- shifts left

  
  

  -New technology: increase- shifts right, decrease- shifts left

  
  

  -No. of firms: increase- shifts right, decrease- shifts left