Factors Influence of Supply - Supply Analysis, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

your assignment for today is to think of
yourself as a supplier of fried chicken
in other words you own a fast food
outlet like this one try to determine
what factors might influence the
quantity of fried chicken that you
decide to supply now for this exercise
don't worry too much about the demand
curve let's just imagine that there is
real market demand of fried chicken
let's see how about that I've decided to
call our business the funky chicken one
of the factors when deciding comes to
supply will be the price so in other
words how much you can get for a piece
of chicken and what a higher price
caused you to supply a higher or a lower
quantity higher the price the more
profits on make and that will push me
into some more that's right
so if we denote quantity supplied as Q s
we can say that as price P increases so
Q s increases and vice versa
looking back how does this price supply
relationship differ from the price
demand for fried chicken pieces well in
the demand formula the higher price
leads to a drop in quantity demanded
it's a negative or inverse relationship
but with supply a rise in price leads to
a higher quantity supplied which is a
positive relationship
now I can hear some of you thinking
surely you can only supply as much of a
products as the public is willing to buy
well that's correct and we'll look more
closely at the relationship between
supply and demand later but for now in
order to understand how a supplier makes
decisions we'll focus just on the supply
side of the market so we can now define
supply it is the quantities of a good or
service that suppliers plan to sell at
each possible price during a certain
period we have established that there's
a positive relationship between price
and the quantity supplied so if the
price rises the quantity supplied will
also increase if we use the symbol P X
for the price of the product as we did
with the demand equation we can start
our supply formula in the same way
supply is firstly a function of the
price of the product P X what other
factors apart from the price do you
think might influence the amount of
fried chicken that the funky chicken
restaurant decides to supply these would
be factors such as the cost of
production things like the rental cost
of the building wages interest on loans
the business has water electricity oil
for frying and of course the price of
chickens straight from the farmer in
other words the price of the factors of
production such as labor and capital are
important as well as the other input
costs like oil water and electricity we
denote the cost of production with the
symbol P C so let's continue our supply
equation what we'll funky chicken do if
its cost of production increases while
the price of fried chicken stays the
same you'll find that the funky chicken
will start to supply or produce less
fried chicken because it is now less
profitable to do so in other words a
negative relationship exists between the
cost of production and supply
or the higher the cost of production the
lower the supply and vice-versa now can
you think of another factor
apart from price and cost of production
another important factor is technology
new technology perhaps a fryer that uses
less electricity or new cheaper
packaging material might make it
possible to produce Fried Chicken at a
lower cost so we'll be able to supply
more at the same selling price we denote
the price of alternative products as PG
and we can add this variable to our
supply equation let's try and figure it
out let's assume that you not only
supply Fried Chicken but also chicken
burgers you must now decide how many
fried chicken pieces to supply and how
many chicken burgers pieces of fried
chicken and chicken burgers are
substitutes in production supplying less
Fried Chicken means you'll be able to
supply more chicken burgers and
vice-versa now as a business person your
primary interest is maximizing your
profits and you'll try to produce a
combination of fried chicken and chicken
burgers that will help you do just that
maximize your profits now given this
information what's most likely to happen
if for some reason the price you can
charge for a chicken burger Rises while
the price of a fried chicken piece stays
the same a negative relationship exists
between the quantity supplied of one
good and the price of an alternative the
higher the price of alternative products
the lower the supply of our primary good
there are also other factors such as the
number of suppliers and expected price
the weather and so on but before we
consider these other factors we'll first
have a look at the law of supply