Supply

• Supply is defined as the quantity of a good that a producer is willing and able to sell at each possible price during a given time period, ceteris paribus.
• Supply indicates the relationship between the price of the good and the quantity of the good supplied over a given time period, ceteris paribus.
• The Marginalist Principle of Supply states that producers will maximise their profits only when they produce a good up to where Marginal Revenue = Marginal Cost.
• Marginal Revenue is the additional benefit from supplying an additional unit of the good, which is its price.
• Marginal Cost is the additional cost from supplying an additional unit of the good.
• Quantity supplied is defined as the amount of a good that a producer is both willing and able to sell at a given price during a time period, ceteris paribus.
• Individual supply is the supply of one producer, whereas the market supply is the sum of the supply of all the producers in the market.
• Non-Price Determinants of Supply:

  • Marginal Cost of Production
  • Price of Factor Inputs
  • Technology
  • Government Policies
  • Price of Related Goods
  • Expectations of Future Prices
  • Number of Sellers in the Market
  • Weather
• The Law of Supply states that over a time period, there is a direct relationship between price and quantity supplied, ceteris paribus.
• As marginal cost of production decreases, firms would increase production in order to capture marginal profits, in turn increasing supply of the good. This is represented by a rightward shift of the supply curve.
• As price of factor inputs increases, marginal cost of production would increase, firms would then decrease production in order to minimise marginal losses, in turn decreasing supply of the good. This is represented by a leftward shift of the supply curve.
• Improvement in technology can lead to an increase in productivity, which reduces the marginal cost of production relative to the marginal revenue, hence firms will increase production and increase supply of the good to capture the marginal profit. This is represented by a rightward shift in the supply curve.
• An indirect tax imposed on a good would result in an increase in marginal cost of production, firms would then have to increase prices while producing the same units of output in order to increase marginal revenue relative to marginal cost. This is represented by a upward shift of the supply curve.
• A subsidy in the production of a good would result in a decrease in marginal cost of production, firms would then decrease prices while producing the same units of outputs as firms are more willing and able to accept lower prices. This is represented by a downward shift of the supply curve.
• Goods in joint supply is defined as the direct relationship of a good's production to the production of another good.
• Goods in competitive supply is defined as the inverse relationship of a good's production to the production of another good due to a diversion of resources from one good to another.
• If the price of a good is expected to rise, producers may temporarily reduce the amount of goods released into the market and stock up in anticipation of capturing higher profits, which results in a decrease in the current supply of the good. This is represented by a downward shift of the supply curve.
• As the number of sellers in the market increases, production of the good would increase, in turn increasing the market supply. This is represented by a rightward shift of the supply curve.
• A change in supply arises only from a change in non-price factors, while a change in quantity supplied arises only from a change in the price of the good itself.
• Assuming joint supply, will the supply of good B shift leftwards or rightwards?

  Rightwards

  
• Assuming competitive supply, will the supply of good B shift leftwards or rightwards?

  Leftwards

  
• Assuming joint supply, will the supply of good B shift leftwards or rightwards?

  Leftwards

  
• Assuming competitive supply, will the supply of good B shift leftwards or rightwards?

  Rightwards

  
• This is a supply curve:

  A) quantity supplied

  B) supply

  C) quantity

  D) price