4). Supply

• What is Supply?

  The quantity of a good or service that producers are willing and able to offer for sale at any given price.
• Movements in a supply curve:

  • A movement along a supply curve is caused by a change in price of a good.
  • A movement from A to C is a contraction in supply, the quantity supplied falls because of a decrease in price.
  • A movement from A to B is an extension in supply, the quantity supplied rises due to an increase in price.

  
• Shifts in a supply curve:

  • A shift of a supply curve is caused by a change in any of the factors which affect supply / the conditions of the supply.
  • A shift from S to S1 is a decrease in supply, because fewer goods are supplied at each and every price.
  • A shift from S to S2 is an increase in supply, because more goods are supplied at each and every price.

  
• Causes of shifts in supply:

  • Cost of production
  • Goals of the supplier
  • Changes in weather
  • Changes in technology
  • Changes in price of other goods
  • Changes in indirect taxes and subsides
  • Changes in the number of firms in the industry
• The Supply Curve:

  • The curve is upward sloping.
  • A change in price will only cause movement ALONG the supply curve.
  • This is known as the law of supply. The law states that there is an direct relationship between quantity demanded and the price of a good or service, ceteris paribus.
  • Price is under the assumption that all other things are equal and therefore only extends or contracts along the supply curve.
  • Now if all other things were not equal it would likely induce a shift in the supply curve.