2.2

• Supply.


  The amount of a good/service that a producer is willing and able to supply at a given price in a given time period <c
• Supply curve


  • Graphical representation of the price and quantity supplied by producers
  • Economists use straight lines to make analysis easier
• The supply curve is sloping upward as there is a positive relationship between the price and quantity supplied (QS)
• Law of supply


  There is a positive (direct) relationship between quantity supplied and price, ceteris paribus
• Market supply


  The combination of all the individual supply for a good/service
• Market supply is calculated by adding up the individual supply at each price level
• The Monthly Market Supply of Bread from 4 Bakeries in a Small town

  • Bakery 1: 300
  • Bakery 2: 600
  • Bakery 3: 180
  • Bakery 4: 320
  • Market Supply: 1400 loaves
• In New York City, the market supply for smart phones in December is predominantly the combination of iPhone and Samsung supply
• At a price of $1000, the supply of iPhones is 300 units and the supply of Samsung phones is 320 units
• At a price of $1,000, the market supply of smart phones in New York City during December is 620 units
• Assumptions underlying the law of supply

  • The law of diminishing marginal returns
  • Increasing marginal costs
• Law of diminishing marginal returns


  As more of a variable factor of production (e.g. labour) is added to fixed factors (e.g. capital), there will initially be an increase in productivity, but a point will be reached where adding additional units of the factor begins to decrease productivity
• Increasing marginal costs


  As a producer increases the quantity of a good/service supplied, the additional cost of producing each additional unit also increases
• Increase in price


  Movement up the supply curve (extension in QS)
• Decrease in price


  Movement down the supply curve (contraction in QS)
• Non-price determinants of supply

  • Changes to the costs of production
  • Changes to indirect taxes and subsidies
  • Changes to technology
  • Changes to the number of firms
  • Weather events
  • Future price expectations
  • Goods in joint and competitive supply
• Increase in costs of production

  Supply decreases, shifting left (S→S1)
• Decrease in costs of production

  Supply increases, shifting right (S→S1)
• Increase in indirect taxes

  Supply decreases, shifting left (S→S1)
• Decrease in indirect taxes

  Supply increases, shifting right (S→S1)
• Increase in subsidies


  Supply increases, shifting right (S→S1)
• Decrease in subsidies


  Supply decreases, shifting left (S→S1)
• Increase in technology


  Supply increases, shifting right (S→S1)
• Decrease in technology


  Supply decreases, shifting left (S→S1)
• Increase in number of firms

  Supply increases, shifting right (S→S1)
• Decrease in number of firms

  Supply decreases, shifting left (S→S1)
• Drought

  Supply decreases, shifting left (S→S1)
• Good weather

  Supply increases, shifting right (S→S1)
• Expectations of future price increase

  Supply increases, shifting right (S→S1)
• Expectations of future price decrease

  Supply decreases, shifting left (S→S1)
• Increase in supply of one good in joint supply

  Supply of the other good increases, shifting right (S→S1)
• Increase in supply of one good in competitive supply

  Supply of the other good decreases, shifting left (S→S1)