Supply
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Supply •
•
Definition: It is the amount of good the producer is willing and able to offer at a certain period of time, ceteris paribus. • Assumptions made are that producers aim is to maximize profits and that ceteris paribus holds. Law of Supply: It states that the quantity supplied of a good, during a period of time, is related to its price, ceteris paribus. • Reasons for the law of supply are that it will become more profitable for the firms and entry of new firms.
Difference in quantity supplied and supply • •
Change in quantity supplied refers to the response of the supply to changes in its own price, ceteris paribus. It is shown by a movement along the same supply curve. Change in supply refers to the response of supply to changes in any of the determinants of supply except the price of the good itself. It is shown by a shift of the supply curve.
Factors affecting Supply 1. Price of the good itself 2. Non price factors • Cost of production • Technology • Government policy • Expected future prices • Number of sellers • Prices of related goods(competitive supply, joint supply) Price of the good itself (causes a movement along the supply curve) Non Price Determinants 1. Prices of factors of production or cost of production • If the cost of production increases and the price of the product remains the same, producers will not be willing to produce that many and this supply curve will shift to the left. • On the other hand if cost of production drops and the price of the good remains the same, the producers will produce more to gain more profit and this will cause the supply curve to shift to the right. 2. Taxes on Goods or Inputs
•
If a tax is levied on the goods, the producers will want to produce less as the cost of production increases and he is not able to make that much profit and thus resulting in a shift of the demand curve to the left. The vertical distance between the two supply curves (with tax and without tax) is the amount of tax levied per unit of output. This implies that a producer is willing and able to supply the same quantity as before only if he is able to charge a price that is higher. Subsidies on the other hand will cause the producers to increase their production as production cost is lowered by the subsidies and the supply curve will shift to the right.
•
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Exceptional Supply • Fixed Supply( Vertical Supply Curve) • Whatever the price of the good, the quantity supplied will be the same this is especially for rare goods such as Mona Lisa by Leonardo da Vinci. •
Infinite Supply(Horizontal Supply) •
The price is fixed and controlled so at that price the supply will be infinite. Such goods are like URA parking coupons. Whatever the demand the price will be the same.
•
Definition: It is the amount of good the producer is willing and able to offer at a certain period of time, ceteris paribus. • Assumptions made are that producers aim is to maximize profits and that ceteris paribus holds. Law of Supply: It states that the quantity supplied of a good, during a period of time, is related to its price, ceteris paribus. • Reasons for the law of supply are that it will become more profitable for the firms and entry of new firms.
Difference in quantity supplied and supply • •
Change in quantity supplied refers to the response of the supply to changes in its own price, ceteris paribus. It is shown by a movement along the same supply curve. Change in supply refers to the response of supply to changes in any of the determinants of supply except the price of the good itself. It is shown by a shift of the supply curve.
Factors affecting Supply 1. Price of the good itself 2. Non price factors • Cost of production • Technology • Government policy • Expected future prices • Number of sellers • Prices of related goods(competitive supply, joint supply) Price of the good itself (causes a movement along the supply curve) Non Price Determinants 1. Prices of factors of production or cost of production • If the cost of production increases and the price of the product remains the same, producers will not be willing to produce that many and this supply curve will shift to the left. • On the other hand if cost of production drops and the price of the good remains the same, the producers will produce more to gain more profit and this will cause the supply curve to shift to the right. 2. Taxes on Goods or Inputs
•
If a tax is levied on the goods, the producers will want to produce less as the cost of production increases and he is not able to make that much profit and thus resulting in a shift of the demand curve to the left. The vertical distance between the two supply curves (with tax and without tax) is the amount of tax levied per unit of output. This implies that a producer is willing and able to supply the same quantity as before only if he is able to charge a price that is higher. Subsidies on the other hand will cause the producers to increase their production as production cost is lowered by the subsidies and the supply curve will shift to the right.
•
•
Exceptional Supply • Fixed Supply( Vertical Supply Curve) • Whatever the price of the good, the quantity supplied will be the same this is especially for rare goods such as Mona Lisa by Leonardo da Vinci. •
Infinite Supply(Horizontal Supply) •
The price is fixed and controlled so at that price the supply will be infinite. Such goods are like URA parking coupons. Whatever the demand the price will be the same.
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