The determinants of the supply of goods and services

• Supply


  Quantity of a good or service that a producer is able and willing to supply at a given price during a given period of time.
• The supply curve is upward sloping because:

  • if price increases, it is more profitable for firms to supply the good so supply increases
  • higher prices encourage new firms to enter the market, because it seems profitable, so supply increases
  • if firms produce larger outputs, their costs increase, so they change higher prices to cover them.
• Profit motive


  Firms are driven by the desire to make large profits.
• Factors which shift the supply curve:

  • Productivity
  • Indirect taxes
  • Number of firms
  • Technology
  • Subsidies
  • Costs of production
• Depreciation in the exchange rate will increase the cost of imports, which will cause an inward shift in supply.