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SUPPLY

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Published in: Economics
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SUPPLY AND IT'S CONCEPTS

Namal I / Dubai

10 years of teaching experience

Qualification: BA(Economics)Special (Hons)(2nd Class). MA(Economics), MA(Financial Economics),M.Econ, MBA, PGD in Information Technology, MIT-Master of Information Technology, NVQ Level 4: Diploma in Computer Networking.

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  1. supply
  2. 3 Demand and supply SUPPLY : Supply refers to the total amount of a good or service that is available to consumers at various price levels over a specific period. In economics, supply is a fundamental concept that explains the relationship between the price of a good or service and the quantity that producers are willing and able to offer for sale. Example of Supply: Imagine a marufacb-rer hat produces eleffonic gadgets. If he price of hese gadgets increases, marufacüer might find it profit±le to produce Tid sell more units, increasing he supply. Conversely, if Mne price falls, Hney might cut back on production, reducing tie supply.
  3. 3 Demand and supply Supply is the ability and willingness of firms to provide goods and services at given price levels. * Higher the price* Higher Supply * Lower the price *Lower Supply WHY ??
  4. 3 Demand and supply Firms are more incentivized to supply their products at higher prices due to two main reasons: 1. Profit Motive: • Higher Profit Margins: As prices rise, firms can earn more profit per mit sold, encouraging Hnem to increase production to maximize revenue. Attraction of New Firms: Higher prices can &aw new firms into Mne market, increasing overall supply as Hney seek to capitalize on potential profits.
  5. 3 Demand and supply Firms are more incentivized to supply their products at higher prices due to two main reasons: 2. Law of Increasing Opportunity Costs: • Resource Allocation: Producing more goods often involves using less efficient resources, leading to higher production costs. Firms are willing to supply more at higher prices to cover dnese cost. Rising Marginal Costs: As firms expand production, he cost of producing each additional mit bpically increases, requiring higher prices to justify Une additional 01-@ut.
  6. 3 Demand and supply Example: Agricultural Products: Farmers will plant more crops if crop prices are high, as Yney can earn more from each ha-vest, justifying he use of additional land and resources. Manufacturing: Marufacb-rers may increase production if the price of heir produc& rises, even if friis means using overtime labor or less efficient machinery, as he additional reverue offsets higher costs. In essence, tie higher Mne price, frie greater tie supply tends to be, as firms aim to maximize dneir profits and manage increasing production cost.
  7. 3 Demand and supply Law of Supply: Price per The Law of Supply states that, unit all else being equal, as the price of a good or service increases, the quantity supplied will also increase, and vice versa. This is because higher prices provide an incentive for producers to supply more of the product.(Figure 3.5) 10 110 Supply Quantity 180
  8. 3 Demand and supply Supply Curve • A supply curve is a graphical representation of the relationship between the price of a good and the quantity supplied. • It typically slopes upwards from left to right, reflecting the direct relationship between price and quantity supplied. The low sup" there a positive rebtmshp E*tæen pree and the quantty' suppoed. As pree increases fm PI b h. the qt.nntity supped rises fm 01 b 02 O figure 3.5 Gwntity The supply curve
  9. 3 Demand and supply Price $2 $4 $6 $8 Example of Supply Curve Quantity Supplied 3 6 9 p 6 2 3 6 9 q or Q
  10. 3 Demand and supply Example of Supply Curve in the Real World Consider a sma@hone marufacüer. As tie market price of sma@hones increases, tie company is more willing to increase production because tie potential profit per unit rises. However, if production costs (like labor or materials) decrease, Mne supply a-rve may shift to he right, indicating hat he company can supply more phones at Mne same price levels due to reduced costs.
  11. 3 Demand and supply Key Concepts of the Supply Curve I. Positive Slope: The supply curve hæ a positive slope, meaning it rises from left to rid-ft. This indicates ffnat higher prices lead to a greater quantity supplied, as producers are more willing to sell heir goods at hid-er prices. 2. Law of Supply: The law of supply states friat, all else being equal, an increase in price results in an increase in quantity supplied. Conversely, a decrease in price results in a decrease in quantity supplied. 3. Price and Quantity Supplied: • The relationship bet,ween price and quantity supplied is direct. As market price rises, producers are motivated to supply more because dney can potentially earn mcre revenue. Lower prices discourage production as profit3 decrease.
  12. 3 Demand and supply Key Concepb of the Supply Curve 4. Factors Affecting Supply: • Production Costs: If production costs decrease (e.g., cheaper materials or labor), he supply curve can shift to he right, meaning more can be supplied at each price level. Technological Advancements: Improved technology can mal<e production more efficient, increasing supply. Number of Sellers: More sellers in tie market increase overall suppliß Government Policies: Taxes, subsidies, and regulations can affect supply. Future Expectations: Expectations of future price increases may lead producers to withold supply now.
  13. 3 Demand and supply Key Concepb of the Supply Curve 5. Shift vs. Movement Along the Curve: Movement Along the Curve: Occurs due to a change in tie price of frie good itelf. Shift of the Curve: Caused by off-er factors affecting supply, such as production costs, technology, etc.
  14. 3 Demand and supply Real-World Applications of Supply Curve The supply a-rve is I-sed extensively in economics to understmd and predict how producers respond to changes in market conditions. Some real-world applications include: I. Agricultural Markets: I-hderstanding how changes in crop prices affect farmers' willingness to supply different quantities. 2. Manufacturing: Analyzing how technological improvements or cost changes in production materials impact å-je supply of goods. 3. Energy Markets: Examining how oil price changes influence frie amount supplied by oil producers. 4. Policy Making: Governments I-se supply curve analysis to anticipate how taxes or st-bsidies will affect production levels. 5. Business Strategy: Companies analyze st-pply curves to determine pricing stategies diat maximize profit while considering production ca)acity.
  15. 3 Demand and supply Market Supply Curve The market supply curve illustrates the relationship between the price of a good or service and the total quantity supplied by all producers in the market. It is a graphical representation showing how the combined output of all firms in a market varies with different price levels. Supply of A p Supply offirm B Qty Qty Market A D Qty
  16. 3 Demand and supply Market Supply Curve Example The market supply curve is the sum of all supply at each price level, as shown in Figure 3.6. Suppose that at a price of$300000 Airbus is willing and able to supply 300 aircraft per time period while its rival Boeing supplies 320 aircraft. At this price, the total market supply is 620 aircraft per time period. $300000 - o 300 o 320 o SAWB 620 Tod Figure 3.6 The market supply curve
  17. 3 Demand and supply Market Supply Curve Activity 1 Investigate the factors that affect the supply of one of the following products: a) coffee b) chocolate c) tea d) sugar e) oil 2 Organise your findings as a PowerPoint document and be prepared to present it to the class.
  18. 3 Demand and supply Determinants of supply Although price is regarded as the key determinant of the level of supply of a good or service, it is not the only factor that affects the quantity supplied. Non-price factors that affect the level of supply of a product include the following: 1. Price of the Product: • • Higher Prices: When Mne price of a product increases, suppliers are typically more willing to produce and offer more of frie product. This results in a movement along frie supply curve. Lower Prices: A decrease in price usually discourages production, leading to a lower quantity supplied.
  19. 3 Demand and supply Production Costs: 2. Determinants of supply Input Prices: Higher costs of irpu& (like labor, raw materials, and energy) make production more expensive, decreasing supply. Technology: Advancements in technology can lower production costs, making it easier for suppliers to produce more, frus increasing supply. Number of Suppliers: 3. More Suppliers: An increase in å-je number of suppliers typically leads to an increase in tie overall market supply. Fewer Suppliers: A reduction in frie number of suppliers can decrease market supply.
  20. 3 Demand and supply Determinants of supply 4. Government Policies: • Taxes and Subsidies: Higher taxes on production can decrease supply, while 3-bsidies can a-courage more production and ircrease supply. • Regulations: Stict regulations cm increase production costs md reduce supply, whereas relaxed regulations may enhance supply. 5. Expectations of Future Prices: Price Increase Expectations: If producers expect higher fut-re prices, dney might reduce current supply to sell more in tie future, Price Decrease Expectations: Expecting lower future prices might prompt producers to increase current supply to sell more before prices &op.
  21. 3 Demand and supply Determinants of supply 6. Prices of Related Goods: Substitutes in Production: If he price of a substitute product increases, suppliers might switch production, reducing tie supply of tie original product. Complements in Production: A rise in tie price of a complementary good may increase he supply of related prod-rts. 7. Weather and Natural Conditions: • Favorable Conditions: Good wed-er can enhance he supply of agricultural products, while unfavorable conditions can Ivrn production. Natural Disasters: Even& like earhquakes, floods, or droughts can disrupt supply chEins and decrease supply.
  22. 3 Demand and supply Determinants of supply 8. Technological Advancements: Increased Efficiency: New technologies can increase production efficiency, resulting in higher supply levels. Obsolete Technology: Outdated technology can hinder production and decrease supply. 9. Supplier Confidence: Economic Conditions: Positive economic conditions boost supplier cmfidence, encouraging hid-er supply. Market Trends: Confidence influenced by market can affect st-ppliers' willingness to produce more.
  23. 3 Demand and supply Determinants of supply 10. Time - The shorter the time period in question, the less time suppliers have to increase their output, so the lower the supply tends to be. Over time, output can be increased. For example, it is not possible for a farmer to increase the supply of agricultural products in a short time period. Movement and shifts in supply
  24. 3 Demand and supply Movement and shifts in supply Movements in Supply A movement along the supply PI — curve occurs when there is a change in the price of the good or service itself. resulting in either an increase or decrease in the quantity supplied. This is also known as a change in quantity supplied and is distinct Exprtsim suppled Abl In gicefromPlbP2 causes q.ontity 9.pplAi b cc«od fm b 02 whereas a pee rtsefrorn PI k) P, COJES the qwrilty s-jgpled expmd fran 03 Figure 3.7 Movements along the supply curve from a shift in the supply curve, which is caused by changes in other factors (determinants of supply).
  25. 3 Demand and supply Price Rise (Expansion): Movement and shifts in supply When Une price of a good or service increases, suppliers are generally willing to produce offer more of he product for sale. This results in an expansion of supply ard is represented by a movement up tie supply cuve to Une right. • Example: If Une price of wheat increases, farmers may be motivated to grow more wheat, leading to an increase in tie quantity st-pplied. Price Fall (Contraction): Conversely, when Une price of a good or service decreases, suppliers are less willing to produce and sell tie product. This results in a contraction of supply and is represented by a movement down tie supply ane to he left. • Example: If price of wheat decreases, farmers might reduce frie quantity hey supply because it is less profitable.
  26. 3 Demand and supply Movement and shifts in supply Expansion in Supply: Occurs wifr) a price increase, leading to a higher quantity supplied. Contraction in Supply: Occurs Wiffl a price decrease, leading to a lower quantity supplied. Movements along the supply curve are solely due to price changes, while shifts in the supply curve result from other factors affecting supply, such as technology, input costs, and government policies.
  27. 3 Demand and supply Shifts in Supply • A shift in the supply curve Price occurs when there is a change in one or more non-price determinants of supply. • leading to either an increase or decrease in the overall supply of a product at all price levels. • This shift can either be to the right (an increase in supply) or to the left (a decrease in supply). s, Decrease in supply Increase in supply Quantity
  28. 3 Demand and supply Key Determinants Causing Shifts in Supply Production Costs: 1. Decrease in Costs: Lower production costs, st-Eh as cheaper raw materials or labcr, can lead to an increase in supply, shifting tie curve to frie right. • Increase in Costs: Higher production costs can decrease supply, shifting dne curve to Une left. 2. Technological Advancements: • Improved technology can make production more efficient, increasing supply ard shifting frie curve to Une right.
  29. 3 Demand and supply Key Determinants Causing Shifts in Supply 3. Number of Suppliers: • Increase in Suppliers: Plore producers in Une market increase supply, shifting he curve to tie right. Decrease in Suppliers: Fewer producers decrease supply, shifting tie cuve to left. 4. Government Policies: Subsidies: Government subsidies reduce production costs, increasing supply and shifting he curve to he right. • Taxes/Regulations: Higher taxes or stricter regulations increase production cos&, decreasing supply and shifting tie cuve to Une left.
  30. 3 Demand and supply Key Determinants Causing Shifts in Supply 5. Prices of Related Goods: Changes in he prices of related goods (complement; or substitutes) can affect supply. For example, if tie price of a substitute good rises, a supplier midnt increase production of tie higher-priced substitute. 6. Expectations of Future Prices: • If producers expect higher future prices, Mney may decrease current supply to sell more in Une fuÜe, shifting frie curve to frie left. Conversely, expecting lower future prices mi$lt increase current supply, shifting ff-je curve to he right.
  31. 3 Demand and supply Key Determinants Causing Shifts in Supply 7. Natural Conditions: • Favorable nab-ral conditions, like good weaåner for crops, increase supply, shifting Une curve to frie right. Unfavorable conditions, such as nab-ral disasters, decrease supply, shifting curve to Mne left. 8. Resource Availability: Abundant resources can increase supply, while scarcity of essential resources can decrease it.
  32. 3 Demand and supply Exam practice Exam Practice Study tips • A shiftin supply is caused by changes in non-price factors that affect supply. such as taxes and adverse weather. • A movement in supply is caused only by changes in prices. Using an appropriate supply diagram, explain the impact on the supply of educational computer games in the following cases: a) The government provides subsidies for the purchase of educational computer games. b) There is an increase in the rate of commission paid to creators and the fee paid to distributors of educational computer games. c) The government introduces a 15 per cent sales tax on all computer games. d) There are technological advances in the production of educational computer games. Using an appropriate diagram, explain how the following changes affect the supply or the quantity supplied in each scenario: a) b) c) d) e) Beijing raises the minimum wage for factory workers by 20 per cent. Drought causes vegetable prices to soar in France. New technology boosts productivity at Tata Motors, India's largest car-maker. The US government subsidises the output of hybrid cars. South Korea's Samsung launches new tablet computers to rival Apple's iPad. Next >> Market equilibrium [41 [41 [41 [41 [41 [41 [41 [41

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