1.2.2 supply

• supply

  the number of goods or services businesses are willing to sell at a given price in a specific time period
• the supply curve

  there is a direct relationship between supply and price. the supply curve slopes upwards from left to right
• changes in price = movement along the supply curve

  • price increases: quantity supplied increases
  • price decreases: quantity supplied decreases
  • businesses are incentivised to supply more product at a higher price
• what factors might affect supply?

  • changes in cost of production
  • new technology
  • indirect taxes
  • government subsidies
  • external shocks
• what factors may affect...

  changes in cost of production:

  increase in production costs:

  • due to the rise in raw materials
  • rise in minimum wage
  • rise in overheads
  • rise in rent or mortgage rate on premises

  business may switch to production of more profitable products

  the amount supplied will decrease
• introduction of new technology:

  new technology means that more goods can be supplied

  • mechanisation and automation of production processes means supply can increase
  • mass production methods improved to increase capacity
• indirect taxes:

  • when the government increases tax on goods such as petrol then supply decreases
  • VAT/customs tax are all indirect taxes and when applied to goods it makes supplying them less attractive

  this can lead to a decrease in supply
• government subsidies:

  the government encourages more suppliers to enter the market by offering subsidies - payment is given to the businesses

  with a subsidy, there is an increase in supply
• external shocks:

  • changes in cost of oil - due to a war
  • changes in labour laws - increase/decrease in salaries
• three non price factors that affect demand

  • change in fashion trends
  • change in technology
  • external shocks
• three non price factors that affect supply

  • new technology
  • indirect tax
  • government subsides
• as price increases, the quantity supplied increases.

  as the price decreases, the quantity supplied decreases

  at high prices businesses are incentivised (to be determined) to supply more of the product
• shifting supply curve

  a change in any non price factor which leads to less supply curve to the left from S to S1

  but a change in any non price factor which leads to more supply will shift the supply curve to the right. From S to S2