supply

• Supply


  The relationship between price and quantity supplied

  
• 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

  
• Individual supply


  The supply that a producer is willing and able to sell at a given price in a given period of time
• Market supply


  The sum of all individual supplies in a market
• Types of supply


  • Joint supply
  • Composite supply
  • Competitive supply
• Joint supply


  Increasing the supply of one good causes an increase or decrease in the supply of another good
• Composite supply


  A good or service can be obtained from different sources and serves more than one market
• Competitive supply


  If the raw materials producing the good in composite supply are perfect substitutes of each other, the sources of supply are in competition to satisfy a particular need or want
• Movements along the supply curve

  1. At price P1, a quantity of Q1 is supplied

  2. At the lower price of P2, Q2 is supplied

  3. This is a contraction of supply

  4. If price increases from P2 to P1, QS increases from Q2 to Q1

  5. This is an expansion of supply

  6. Only changes in price will cause these movements along the supply curve

  
• Firms are driven by the desire to make large profits
• Shifting the supply curve

  1. Price changes do not shift the supply curve

  2. A shift from S1 to S2 is an outward shift in supply, so a larger quantity of goods is supplied at the market price of P1

  3. A shift from S3 to S1 is an inward shift in supply. More goods are supplied at the market price of P1

  
• Factors that shift the supply curve (PINTSWC)

  • Productivity
  • Indirect taxes
  • Number of firms
  • Technology
  • Subsidies
  • Weather
  • Costs of production
• Depreciation in the exchange rate

  Increases the cost of imports, which will cause an inward shift in supply
• to maximise profits firm will use
• to maximise profits firms will use :

  • temporary High prices-produce and sell as much In this window
  • switch resources - selling price of one product increases, they switch resources from one product to another =a higher profit margin
  • new entrants - increase prices and signals profit margins are increasing meaning entrepreneurs are more likely to join market
• influences on supply

  1. cost of production
  2. producer tax - increases cost to supply
  3. price of other goods
  4. expected profit levels