Definition of Supply
The various quantities of a good/service a producer is willing and able to offer for sale at a given set of prices over a period of time in a given market.
The Supply Curve
- Supply schedule: Table sowing the different quantities of a good that producers are willing and able to supply at various prices over a given period of time.
- Supply Curve: Illustrates the supply schedule in graphical form (Px on Y-axis, Qs on X-axis)
The Law of Supply
States that a direct relationship exists between the price of a good and the quantity supplied of a good, ceteris paribus. (+ve gradient)
Individual supply vs Market supply
- Individual supply: Supply of an individual producer
- Market supply: Total quantity supplied by all the producers who are willing and able to sell the good at each price level. (Horizontal summation of all the individual supply curves)
Changes in Quantity supplied
- Quantity supplied: Particular point on the supply curve
- Movement: Along the supply curve
- Effected ONLY by: Change in price
Changes in Supply
- Movement: Shift of the curve (Increase = shift right)
- Effected by: Non-price factors
Non-price factors
Cost of production
- Wages, Px of raw material, fuel, power (Increase, supply decrease)
- Tax (Increase, supply decrease)
- Subsidy (Increase, supply increase)
State of Technology
- Efficiency improve, Cost of production decrease, supply increase
Px of related goods
- Substitutes in PRODUCTION increase Px, resources channelled to their production, supply decrease
- Complements in PRODUCTION increase Px, supply of complements increase, supply increase
Number of Producers
- Number increase, supply increase
Seller’s Px expectations
- Expect price increase, supply decrease
- Less impact on perishable goods
Others
- Climatic conditions (pollution)
- Nature / abnormal circumstances (disaster)
Vertical supply curve
Indicates price inelastic supply
- One-of-a-kind / limited edition: Supply never changes
- Agricultural products: Supply usually cannot change within the year, but can change over the years
