Supply
Supply is the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period.
The basic law of supply is that as the price of a product increases, businesses expand supply to the market.
The profit motive
If the market price rises following an increase in demand, it becomes more profitable for businesses to increase output.
Causes of a shift in supply
- Changes in the cost of Production
- Lower unit costs mean that a business can supply more at a lower price. Supply increases.
- Higher unit costs cause an inward shift of supply, e.g a rise in wage rates or raw materials.
- A fall in exchange rate causes an increase in prices of imported goods and raw materials. Supply decreases.
- Advances in production technologies. Supply increases.
- Favourable weather conditions. Supply increases.
- Taxes, subsidies and government regulations.
- Indirect taxes cause an inward shift of supply.
- Subsidies cause an outward shift of supply.
Types of supply
Joint Supply
When the production of one product leads to the creation of another (a by-product)
- Cows for beef and leather.
Competing Supply
A resource that can be used in the production of more than one product.
- Land could be used to produce 1 crop instead of another.