supply

• Supply


  The quantity of a good or service that producers are willing and able to produce at a given price in a given time period
• Law of supply


  • There is a direct relationship between price and quantity supplied
  • As the price increases, quantity supplied increases
  • As the price decreases, quantity supplied decreases
• Price increases


  Quantity supplied increases
• Price decreases


  Quantity supplied decreases
• Extension of supply


  When supply increases by moving along the supply curve as price increases
• Contraction of supply


  When supply decreases by moving along the supply curve as price decreases
• Ceteris paribus is assumed to isolate the relationship between price and quantity supplied
• Price increases


  Move up the supply curve (extension of supply)
• Price decreases


  Move down the supply curve (contraction of supply)
• Profit motive


  The reason for the direct relationship between price and quantity supplied
• Quantity supplied increases


  Costs of production increase
• Costs of production increase

  Suppliers want a higher price to maintain profit margins
• Non-price factors


  • Shift the supply curve
  • Increase in non-price factors shifts supply curve right
  • Decrease in non-price factors shifts supply curve left
• Non-price factors that affect supply


  • Productivity*
  • Indirect taxes*
  • Number of firms
  • Technology*
  • Subsidies*
  • Weather
  • Costs of production*
• Non-price factors that affect costs of production will shift the supply curve