Jump to first page Law of Supply Price and Quantity are conversely related. The role of supply is most easily analyzed in competitive markets where the “invisible hand” of competition operates.

Jump to first page Price and quantity are conversely related: As Price Increases, Quantity Supplied Increases As Price Decreases, Quantity Supplied Decreases P Q 0 S P Q 0 S

Jump to first page Supply Curve for Soy Beans n The supply curve shows the possible conbinations of prices and quantities supplied of a product (Soy Beans). n A change in a product’s price causes a movement along the supply curve, thus a change in quantity supplied. n When the price of Soy Beans falls from $2.00 to $1.50 per Kilogram, then quantity supplied also falls from 9 million to 5 million kilograms, because farmers find it profitable to produce fewer soy bean plants. n The positive (upward) slope of the supply curve illustrates the direct relationship between price and quantity supplied.

Jump to first page Changes in Supply n There are factors that may cause the entire supply curve to shift -- supply determinants. n There can be an increase or decrease in Supply: F Increase in Supply: an increase in the quantity supplied of a product at all prices(S2). F Decrease in Supply: a decrease in the quantity supplied of a product at all prices (S3).

Jump to first page What Causes an Increase/ Decrease in Supply 1.Price of the product (the higher/lower the price, the greater/less the supply) 2.Reduction/Increase in production costs (Example: a wage increase or a resource price decrease) 3.Technological Change (always improves productivity and reduces costs, ie. automation)

Jump to first page What Causes an Increase/ Decrease in Supply 4. Tax Changes (a decrease/increase in taxes causes an increase/decrease in supply) 5. Favourable/Unfavourable Climate (affects supply in some goods, ie. Agriculture) 6. Producer Expectations (optimism/pessimism will alter supply patterns)