Supply in Economics

Definition of Supply

• Supply refers to the quantity of a good or service that producers are willing and able to produce at a given price in a given time period.
• Similar to demand but for producers.

Law of Supply

• Direct relationship between price and quantity supplied.
  • As price increases, quantity supplied increases.
  • As price decreases, quantity supplied decreases.
• Assumption: Ceteris Paribus (all other factors remain constant).

Supply Curve

• Drawn upward sloping to represent the direct relationship.
• Movements along the supply curve:
  • Extension of Supply: When price increases, moving up along the curve.
  • Contraction of Supply: When price decreases, moving down along the curve.

Profit Motive

• Producers supply more when prices are higher due to the potential for increased profits.
• Higher prices cover increased costs of production when quantity rises.

Non-Price Factors Affecting Supply

• These factors shift the supply curve rather than moving along it.
• Increase in Supply: Shift to the right.
• Decrease in Supply: Shift to the left.
• Important factors include:
  • Productivity (P): Higher productivity decreases costs of production, shifting supply to the right.
  • Indirect Taxes (I): Increase in taxes increases costs, shifting supply to the left.
  • Number of Firms (N): More firms increase supply, shifting the curve to the right.
  • Technology (T): Technological improvements decrease production costs, shifting supply to the right.
  • Subsidy (S): Grants from the government lower production costs, increasing supply.
  • Weather (W): Good weather increases supply, bad weather decreases it.
  • Cost of Production (C): Includes transport, labor, raw materials, and regulatory costs.
    • Increase in costs shifts supply left, decrease shifts supply right.

Key Points to Remember

• Price changes result in movement along the supply curve.
• Non-price factors cause the supply curve to shift.
• Always remember the acronym "PINTS WC" for non-price factors.

Conclusion

• Understanding supply involves both price-driven movements and shifts due to external factors.
• Future videos will cover equilibrium.