1.2.4 Supply

• Supply


  The quantity of a good or service that a producer is able and willing to supply at a given price during a given period of time
• Supply curves


  • Upward sloping
  • If price increases, it is more profitable for firms to supply the good, so supply increases
  • High prices encourage new firms to enter the market, because it seems profitable, so supply increases
  • With larger outputs, firm's costs increase, so they need to charge a higher price to cover the costs
• Factors that shift the supply curve (PINTSWC)

  • Productivity
  • Indirect taxes
  • Number of firms
  • Technology
  • Subsidies
  • Weather
  • Costs of production
• Productivity


  Higher productivity causes an outward shift in supply, because average costs for the firm fall
• Indirect taxes


  Inward shift in supply
• Number of firms


  The more firms there are, the larger the supply
• Technology


  More advanced the technology causes an outward shift in supply
• Subsidies


  Subsidies cause an outward shift in supply
• Weather


  Particularly for agricultural produce. Favourable conditions will increase supply
• Costs of production


  If costs of production fall, the firm can afford to supply more. If costs rise, such as with higher wages, there will be an inward shift in supply
• Depreciation in the exchange rate

  Increases the cost of imports, which will cause an inward shift in supply
• Joint supply


  Increasing the supply of one good causes an increase or decrease in the supply of another good. For example, producing more lamb will increase the supply of wool