Supply Concept and Dynamics

Definition of Supply

• Supply refers to the producer's willingness to sell at different price points, represented by a supply curve.
• Quantity Supplied is the amount a producer is willing to sell at a specific price; it's a single quantity.
• The supply curve shows the relationship between price (vertical axis) and quantity supplied (horizontal axis).

Characteristics of the Supply Curve

• Upward Sloping: As price increases, quantity supplied increases.
• Every point on the curve represents a specific quantity supplied at a given price.

Misconceptions About Supply

• It's incorrect to say "when price increases, supply increases." Instead, say "when price increases, quantity supplied increases."
• Movement along the curve indicates a change in quantity supplied due to price change.

Law of Supply

• States that price and quantity supplied are positively related, meaning the supply curve is upward sloping.

Types of Supply

• Individual Supply: Quantities a single producer will supply at different prices.
• Market Supply: Total quantities all producers in a market will supply 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 factors other than price.

Factors Causing Shifts in Supply

1. Prices of Resources:

   • Increase in resource prices leads to decreased supply (shift left).

2. Advances in Production Technology:

   • Improved technology decreases production costs, increasing supply (shift right).

3. Taxes and Subsidies:

   • Taxes decrease supply (shift left), while subsidies increase supply (shift right).

4. Number of Sellers:

   • More sellers in the market increase supply.

5. Producers' Expectations:

   • Expected future price increases may decrease current supply as producers withhold goods.
   • Expected future price drops may increase current supply as producers sell off goods.

6. Related Goods in Production:

   • Substitutes in Production: Using resources for one product may decrease supply of another (e.g., wheat vs. corn).
   • Complements in Production: Byproducts of a product can increase supply without additional resources.

This comprehensive overview provides insights into the concept of supply, how it is measured, and the various factors that influence changes in supply and quantity supplied.