Definition
Supply refers the
amount of goods and services producers are willing and able to supply at a
given price.
Law
of supply
Law of supply states
that assuming Ceteris Peribus, more will be supplied at higher price. Therefore
between quantity supplied and price, there is a positive relationship.
The
supply curve
The supply curve is an
upward sloping curve which represents the producers willingness and ability to
supply a good.
Upward
sloping supply curve does not apply. For e.g. too much of what is produced by
government
As
shown supply curve is upward sloping. This positive slope between market price
and quantity supplied are for three reasons:
· Profit Motive:When the prices
increases (for example a rise in market demand), it becomes more profitable for
business to increase their output. Hence for example the higher price signals
the producers to increase the output since the scope of their profit has risen.
· Production and cost:When the production of
a firm increases, the required cost of production increases as well. Therefore
a higher price is needed to justify the extra cost business faces.
· New entrants coming
into the market:The higher prices will attract new entrants to enter
into the market causing the supply to increase.
Movement
along the supply curve and movement of supply curve
Movement
along the supply curve refers to change in quantity demanded when the market
price changes. It can be in the form of expansion of supply – increasing
quantity supplied when price increases or contraction of supply – fall in
quantity supplied as a result of price decline.
Movement of supply curve refer to shift
of supply curve . A supply curve can shift to right (increasing supply or to
left (reduction in supply)
Factors
that cause shift of supply
Changes in cost of production: When cost of
production reduces more of the good can be supplied at a lower price. Any direct or indirect affect to cost
of production can affect the supply.
Changes in production technology: When technology
improves it increase the supply of goods and services because it mean more can
be produced using the resources
The Price of other goods:When there is change
in price of other goods it affect the supply of particular good.
Example: if the price of
beef rise there will be rise in demand of beef and more cows will be
slaughtered which increase the leather supply
Other Changes :
1)Govt.
Legislation
2)Weather
3)Expectation
of future events