Supply

• Supply refers to the quantity of goods or services that producers are willing to sell at a particular price.

  If the price of a product rises, supply rises as;

  • Existing producers supply more to increase profits
  • New producers enter the market as they see an opportunity to profit

  If the price of a product falls, supply falls as;

  • Some producers leave the market, due to not enough profit made
• Factors affecting Supply (1):

  • Substitute Goods - Samsung increases the price of their phones as their rent has increased. Apple increases the supply of their phones, due to an expected demand increase of iPhones from the Samsung's higher price.
  • Government Action - a quota can be imposed, limiting the quantity of goods produced, reducing supply. An increase in taxes can increase production cost, which can lead businesses to close down. This reduces supply. The converse applies with tax reduction.
• Factors affecting Supply (2):

  • Competition - as an economy grows, new suppliers enter the market. This leads to an increased supply of goods and a decrease in price, due to suppliers wanting a larger market share (having the largest amount of consumers buying your product).
  • Cost of Production - if the cost of production increases; wage increase, raw materials price increase, then firms may stop providing goods or services to the market, due to not enough profit made to sustain a business. This leads to a reduction in supply.
• Law of Supply:

  • Price increase -> Supply increase
  • Price decrease -> Supply decrease

  Excess Supply (Supply > Demand) - too much supply for what is demanded. Occurs when the price is below the equilibrium. This places a 'downward pressure' on the price, making the price lower.