Supply

What is Supply? Supply refers to a relationship between price and the quantity of a good or service that firms are willing to produce

Law of Supply A microeconomic law stating that, all other factors being equal, as the price of a good/service increases, the quantity of goods/services offered by the supplier increases and vice versa.

Supply Explained A higher price for a good leads to a greater quantity supplied. Supply is typically illustrated as an upward-sloping curve on a graph with quantity on the X axis and price on the Y axis.

Change in Supply For example: A change in natural conditions can affect the supply of a farm product like corn. A drought can cause the supply of corn to decrease, while especially good weather can cause it to increase.

Change in Supply A fall in the price of inputs, like seeds, causes supply of corn to increase; a rise in the price of seeds causes the supply of the corn to decrease. An improved production technology that reduces the cost of production, like a bigger, better tractor or “Round-Up Ready” seed, will cause the supply of corn to increase.

Factors That Cause Changes in Market Supply Cost of inputs Improvements in human capital (education, training)

Factors That Cause Changes in Market Supply Technology Government regulations

Factors That Cause Changes in Market Supply Change in the number of sellers Producer expectations

Factors That Cause Changes in Market Supply Weather/natural disasters

Price Quantity $1 2 $2 4 $3 6 $4 8 $5 10