Supply

4 May

 Supply is a curve or a schedule that represents the amount of goods that producers are willing and able to make available at each possible price, other things equal. Law of supply says that, ceteris paribus, if the price for a good or a service increases, then the supply of it also increases. We can say that there is a positive relationship between the supply and price of that good: “As price rises, the quantity supplied rises; as price falls, the quantity supplied falls”. But in this case high price is an obstacle for consumer to buy that good, as is stated by demand law. For producers revenue is an incentive, then higher the price, higher the incentive and greater the amount supplied.

Basic determinants of supply are:

  1. Resource prices-Since resources are inputs in production process, then they determine the price of final good. So, more expensive are resources, less incentive to product that good, because profit of suppliers is reduced.
  2. Technology– Improvements in technology help a firm to create goods at lower price, and then suppliers get higher revenue. Their money helps them to produce a higher amount of goods, that’s why supply is increased.
  3. Price expectation-If suppliers expect that price for the good they produce increases, then they will produce more of it.
  4. Number of sellers in market-If the number of sellers in a market increase, then the supply also increased.
  5. Price of other goods– An increase in price of “other goods”, may change suppliers to produce that goods which is more demanded and decrease supply of goods they have produced before.
  6. Taxes and subsidies-An increase in taxes is an impediment for producers, then they will be able to produce less goods for the same amount of money. Suppliers take taxes as a cost. Subsidies help them to increase quantity of goods they produce.

Change in Quantity Supplied.
The distinction between a change in supply and a change in quantity supplied is the same as change in demand and change in quantity demanded. Change in supply means that the whole supply curve shifts toward left or right. In contrast, change in quantity supplied is a movement from one point to another on a fixed supplied curve. This change in quantity supplied is not change in supply. Supply is the full schedule of prices and quantities offered, and this schedule doesn’t change when price changes.

New Terms:
Supply-A schedule or curve that shows the amounts of a prod­uct that producers are willing and able to make available for sale at each of a series of possible prices during a specific period.
Law of Supply-The principle that, other things equal, an increase in the price of a product will increase the quan­tity of it supplied; and conversely for a price decrease.
Supply curve-A curve illustrating the posi­tive (direct) relation­ship between the quantity supplied of a good or service and its price, other things equal.
Determi­nants of Supply-Factors other than its price that determine the quantities supplied of a good or service.
Change in supply- A change in the quan­tity supplied of a good or service at every price; a shift of the supply curve to the left or right.
Change in Quantity supplied- A movement from one point to another on a fixed supply curve.

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