Introduction to Supply Chapter 4 Introduction to Supply

Supply Definitions Individual supply refers to the quantity of a good supplied by an individual firm at different prices. Market/aggregate supply refers to the quantity of a good supplied by all the firms in the market at different prices. A supply schedule is a table illustrating the different quantities of a good made available for sale at various market prices at any given time.

Supply Definitions An individual supply schedule is a table illustrating the different quantities of a good made available for sale by an individual firm at various market prices at any given time. A market/aggregate supply schedule is a table illustrating the total quantities of a good that all the firms in the market are willing to make available for sale at various prices at any given time.

Supply Curve A supply curve is a graph illustrating the number of units of a good made available for sale at various market prices at any given time. There is a positive relationship between price and quantity supplied. The supply curve is usually upward sloping from left to right.

Types of Supply Curves An individual supply curve is a graph illustrating the different quantities of a good made available for sale by an individual firm at various market prices at any given time. A market/aggregate supply curve is a graph illustrating the total quantities of a good all the firms in the market are willing to make available for sale at various prices at any given time.

Other Circumstances of Supply Supply is restricted by a minimum market price Supply is restricted by limited capacity Fixed supply

Movement or Shift in the Supply Curve There can be movement along the supply curve or a shift in the supply curve. A movement along the supply curve and a change in the quantities supplied are caused by a change in price of the good or service. A shift along the supply curve is caused by a change in any non-price determinant of supply – any other variable that influences quantity supplied.

An Increase in Supply If there is an increase in quantity supplied of a good, the supply curve will shift to the right from Sx to S1, as seen in the graph.

A Decrease in Supply If there is a decrease in the quantity supplied of a good, the supply curve will shift to the left from Sx to S2, as seen in the graph.

The Supply Function Sy = f (Py, Pr, C, U, Tch, Tx, O, N) Py = price of Good Y Pr = price of related goods C = cost of production U = factors outside the control of the firm Tch = state of technology Tx = taxation/subsidy O = objectives of the firm N = number of firms in the industry

Causes of Increase in Cost of Production A rise in labour costs A rise in the cost of raw materials An increase in taxes A reduction in subsidies Causes of Decrease in Cost of Production A fall in labour costs A fall in the cost of raw materials A reduction in taxes An increase in subsidies

Causes for Increase in Quantity Supplied A fall in the price of a related good A fall in the cost of production Favourable unplanned factors An improvement in technology A reduction in taxation/granting of a subsidy Deliberate increase in output Increase in the number of sellers in the industry

Causes for Decrease in Quantity Supplied A rise in the price of a related good A rise in the cost of production Unfavourable unplanned factors An increase in taxation/decrease in subsidies Deliberate decrease in output A decrease in the number of sellers in the industry

Producer Surplus Producer surplus is the difference between the lowest price a supplier is willing to accept for a good and the price they actually receive.

Jean Baptise Say (1767–1832) Say’s Law – ‘supply creates its own demand’ People work to acquire needs/wants Specialisation of labour Production creates demand Savings decrease interest rates Self-adjusting system