Supply is the amount of goods or services that producers are willing and able to sell at each price point at a particular point in time #testanswer
The law of supply
In most cases, there is a positive relationship between the price of a good and the quantity supplied of that good #testanswer
At higher prices, suppliers are willing to produce more as it means they can earn more profit
The relationship between individual and market supply schedules/curve factors
Market Supply Curve
The curve obtained from the horizontal summation of individual supply curves
Individual Supply Curve
A supply curve relating to an individual producer
The effect of changes in price on quantity supplied
Price can have either a contractionary or expansionary effect on the supply curve
This is a movement along the existing supply curve
Expansions are an increase in price
Contractions are a decrease in price
The effect of changes in non-price factors on quantity supplied
This has shift effect on the curve, where quantity produced changes at every price point
Rightward shifts $\rightarrow$ increase in supply
Leftward shift $\rightarrow$ decrease in supply
There are many examples that must be known
Expectations of Producers
This is like expected future prices; expected price changes cause suppliers to alter current supply to take advantage of future prices
Technology
Improvement in technology can reduce production costs, allowing suppliers to produce more at a lower cost
Increase in supply is show as a rightward shift of the supply curve
Prices of other goods
If the price of a related good increases, the supplier can shift production to increase the quantity supplied of the related good
Input prices
Production costs - if the input prices go down, supply can increase
If input prices go up, supply decreases
Government Regulation
Government regulations influence the number of suppliers in the market, which increases or decreases market supply
Government regulations can take the form of
Taxes
Tariffs
Subsidies
Quotas
Example
The car market
Government regulation (luxury car tax) $\rightarrow$ decrease in supply, shifting the supply curve from $S$ to $S_2$ at every price point (this is an ideal #testanswer )
Input prices (steel price increases) $\rightarrow$ decrease in supply
Technology (better manufacturing) $\rightarrow$ increase in supply
Questions
Crude oil prices fell below $$100$ a barrel. This led to unleaded petrol prices to faling $4.6c$
Two non price factors are;
Input prices - the fact that crude oil price decreased directly correlated to unleaded petrol prices
Government regulation - decreasing taxes could increase supply, shifting the curve to the right.
An increase - this would shift the curve to the right, allowing suppliers to produce more supply at the same price point
For fresh vegetables, petrol is a massive input price, and therefore a non-price factor. A decrease in such an input price would increase supply in the market and allow vegetables to get cheaper. Below, we can see that at Q1, after the shift to the right due to a change in petrol prices, prices for vegetables decreases.
