supply

• Supply is the quantity of a good or service that producers are willing and able to produce at a given price
• The law of supply states that there is a direct relationship between price and quantity supplied.
• When the price of a good or service increases, the quantity supplied increases
• The supply curve is drawn upward sloping to indicate the direct relationship between price and quantity
• An extension of supply occurs when the price of a good or service increases and the quantity supplied increases.
• When the price of a good or service decreases, there is a contraction of supply
• When the price of a good or service changes, movement occurs along the supply curve.
• The profit motive is the primary reason for the upward sloping nature of the supply curve
• Order the following steps to illustrate the law of supply on a diagram:

  1️⃣ Draw an upward sloping supply curve

  2️⃣ Mark initial price and quantity (p1, q1)

  3️⃣ Increase the price from p1 to p2

  4️⃣ Show the corresponding increase in quantity from q1 to q2
• Match the term with its definition:

  Extension of supply ↔️ Increase in quantity supplied due to price increase

  Contraction of supply ↔️ Decrease in quantity supplied due to price decrease
• Non-price factors cause shifts in the supply curve.
• A reduction in the cost of production will shift the supply curve to the right
• An increase in indirect taxes will shift the supply curve to the left.
• The entry of more firms into the market will shift the supply curve to the right
• Improved technology can reduce costs of production and shift the supply curve to the right.
• A subsidy is a money grant by governments to producers to lower costs of production
• Good weather for agricultural products can shift the supply curve to the right.
• Order the following non-price factors based on their effect on the supply curve:

  1️⃣ Improved productivity of labor

  2️⃣ Decrease in indirect taxes

  3️⃣ Increase in the number of firms

  4️⃣ Granting of a subsidy

  5️⃣ Good weather
• Increased transport costs will shift the supply curve to the left.
• Government regulations that increase production costs will shift the supply curve to the left