Supply

Supply Quantity of a good or service producers are willing and able to sell at different prices at a particular time. Law of Supply – A positive relationship between the quantity supplied and the price of the product. As price rises, quantity supplied will tend to rise.

$7 6 5 4 3 2 1 P r i c e G a l lon 0 1 2 3 4 5 6 7 Millions of Gallons per Week

On a supply graph, price is shown on the vertical axis and quantity is on the horizontal axis. There is a price effect for supply. Companies will be willing to supply a higher amount at a higher price if the price exceeds the higher marginal cost. Market supply – the total of all individual suppliers’ products in a market at a particular time.

Elasticity of Supply If a price change causes a large change in the amount supplied, the supply is elastic. If the change is not significant then the supply is inelastic. Elasticity depends on the ease and speed of bringing new resources into production in response to a higher price. The faster and easier it is to increase production the more elastic the product.

Price Effect and Change in Supply Similar to price effect of demand and a change in demand. Change in supply represents a change in the amount supplied at every price. It is represented by a shift in the line left or right.

Changes in Supply Changes in the marginal cost of production – if cost falls suppliers will be able to supply more at every price. This can happen due to better efficiency, less expensive materials, improved production strategies.

Changes in the number of producers A new business enters the market – supply increases. Changes in expectations – If producers expect higher or lower future prices for products, they may change the amount supplied today. Example – gasoline - production will slow down if suppliers think they can get a higher price in the future. Shift is to the left.