Lecture Notes on Supply

Introduction to Supply

• Supply originates from the seller.
• Quantity Supplied: The amount a producer is willing to sell at a given price.
• Supply: An economic model depicting how much sellers will sell at various prices, represented by a supply curve.

Supply Curve

• Quantity supplied is on the horizontal axis; price on the vertical axis.
• As price increases, quantity supplied also increases.
• Supply curve is upward sloping.
• Every point on the supply curve indicates the quantity supplied at a specific price.

Misconceptions about Supply

• Supply should involve price and quantity as variables.
• Incorrect to say price increase leads to supply increase; rather, it affects quantity supplied.

Law of Supply

• Direct Relationship: Price and quantity supplied are positively related.
• Supply curve is upward sloping.

Types of Supply

Individual Supply

• Quantities a single producer will produce at different prices.

Market Supply

• Total quantities produced by all producers in the market at different prices.

Changes in Supply vs. Quantity Supplied

• Change in Quantity Supplied: Movement along the supply curve due to price change.
• Change in Supply: Shift of the entire supply curve due to other factors.
  • Rightward shift indicates an increase.
  • Leftward shift indicates a decrease.

Factors Causing a Shift in Supply

1. Resource Prices: Increase in resource prices leads to a leftward shift.
2. Production Technology: Advances reduce costs, causing the supply to increase.
3. Taxes and Subsidies
   • Taxes: Negative impact, leftward shift.
   • Subsidies: Positive impact, rightward shift.
4. Number of Sellers: More sellers increase supply.
5. Producer Expectations:
   • Expectation of future price increase: Current supply decreases.
   • Expectation of future price decrease: Current supply increases.
6. Related Goods in Production
   • Substitutes: Using the same resources for different goods.
     • Increase in one good's price decreases supply of another.
   • Complements: Byproducts produced without extra resources.
     • Increase in one good's price increases supply of the complement.