Supply

• Supply- amount of gooods/services that a producer is willing and able to supply at a given price in a given time period
• Individual supply- absolute quantities of goods and services a producer is willing and able to provide at different prices over a period of time, CETERIS PARIBUS
• Ceteris paribus- other things being equal
• Market Supply- sum of all individual supplies for a product at every prices
• Law of Supply- States there is a positive (direct) relationship between quantity supplied and price. If price increase, supply increase and vice versa
• Movements in a supply curve- A change in price causes a movement
• Shifts in a supply curve- A change in non-price determinants causes a shift. They are: CISTERN

  • Cost of production
  • Indirect taxes
  • Subsidies
  • Technology advancement
  • Expectations of future prices
  • Related products
  • Number of firms
• Changes in cost of production- if price of raw materials or other cost of production such as wages, firms respond by changing supply. - Cost of production decrease, supply increase and vice versa
• Technological Advancement- New technology can reduce costs of production and therefore increase supply. The supply curve shifts rightward
• Subsidy- A payment made by the government to firms to encourage the production of a particular good or service.
• Indirect taxes- taxes on goods and services that are not included in the price of the product (VAT, EXCISE DUTY)
• Changes in future price expectations- If firms believe that price will increase next week, they would hold their goods to sell them at a higher price so supply would decrease. If price decrease next week, firms would try to sell all before price decreases, so supply would increase
• Changes in number of Firms-if number of firms increase, supply increase. If number of firms decrease, supply decrease
• Joint Supply- Occurs when the supply of two different goods are taken from the same product. (beef and leather)
• Goods in Joint supply- Increase in supply of one good A (beef) due to higher prices, will increase supply of the other good B (leather)
• Competitive supply- Production of one good uses the same processes and resources of another good so producing more of good A will decrease the production of good B (Potatoes and Wheat)
• Goods in competitive supply- Supply of good A increase, supply of the other good decreases
• Law of diminishing marginal returns- Only applies in the short run, at least 1 factor of production is fixed in the short run. States that as more of a variable of a factor of production (e.g, labor) is added to a fixed factor of production (e.g., capital), there will be an increase in productivity for a small amount of time, however, a point will be reached were adding more of the additional units (e.g. more workers) to the fixed factor, productivity will begin to decrease
• Marginal cost- As producers increase the quantity of a good/services supplied, the additional cost of producing more also increases so cost of production increases but supply increases also