demand and supply summary

Topic:
Market
Supply

Theme
1:
Section
1.2
The
Market

What
You
Need
to
Know

• What
is
supply?

• Drawing
a
supply
curve

• Factors
leading
to
a
change
in
supply



Introduction
to
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

The
basic
law
of
supply
is
that
as
the
selling
price
of
a
product
rises,
so
businesses

expand
supply
to
the
market.
The
higher
selling
price
acts
as
an
incentive
for

businesses
to
produce
more
–
and
it
may
also
attract
other
suppliers
into
the

market.
This
is
illustrated
in
the
diagram
below:














Causes
of
Changes
in
Market
Supply

The
four
main
causes
of
changes
in
the
amount
supplied
to
a
market
are:



• Costs
of
Production

• External
Shocks

• New
Technology

• Taxation
&
Subsidies



Let’s
look
briefly
at
each
of
these



Supply
and
Costs
of
Production

It
stands
to
reason
that
the
costs
of
producing
output
will
influence
how
much
a

business
is
able
to
supply:



• Lower
unit
costs
mean
that
a
business
can
supply
more
at
each
price
–
for

example
through
higher
productivity

• Higher
unit
costs
cause
an
inward
shift
of
supply
e.g.
a
rise
in
wage
rates
or
an

increase
in
energy
prices
/
other
raw
materials



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