What determines the supply of a good or service in a market? Microeconomics Topic 2b: The Allocation of Resources - supply in a market What determines the supply of a good or service in a market? Q: Why is advice so cheap? A: Because supply always exceeds demand.

1.2.4 Unit content Students should be able to: Define supply Explain how a change in price causes a movement along a supply curve Distinguish between movements along a supply curve and shifts of a supply curve Assess the factors that may cause a shift in the supply curve

Definition of actual and planned supply What is supply?

The theory of supply In theory, at higher prices a ______ quantity will generally be supplied than at lower prices, ceteris paribus, and at lower prices a ________ quantity will generally be supplied than at higher prices, ceteris paribus. So we have higher supply at higher prices and vice versa. Again, it is important to assume that ‘all other things remain constant’.

What does the supply show? The supply curve shows the relationship between the amount offered for sale and the price. What is the main objective of firms? So what will they want to do if prices rise?

Why is the supply curve upward sloping?

Movement along a supply curve Movements along the supply curve are caused by changes in price. This is called an extension in supply when the quantity supplied increases as the price increases. A contraction in supply is when the reverse happens; as price falls the quantity supplied falls.

Shifting a supply curve What happens to the supply curve if factors OTHER than price change?

Supply and lower costs Similarly if something happens that decreases a firm’s costs (e.g. a subsidy from the government) then the firm’s supply curve shifts to the __________ Why?

What factors shift supply ?

Changes in income and supply Shifting the supply curve NOTE – if demand changes this will shift demand but not supply. A change in demand will cause a ____________ along the supply curve not a shift. So changes in income (e.g. increased economic growth) or increased demand for certain goods will NOT SHIFT the supply curve as they won’t affect the costs for firms.

Joint supply Joint supply occurs when a product is made as a by-product of the manufacturing process. For example an increase in the demand for beef and the subsequent extension of supply also increases the supply of leather. Therefore if goods are in joint supply there might be a change to the price of one of those goods caused by changes in demand for the other.