Supply | Economics for Grade 12 PDF Download

Introduction to Supply

• Supply is the amount of a good/service that a producer is willing & able to supply at a given price in a given time period
• A supply curve is a graphical representation of the price and quantity supplied by producers
  • If data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier
•  The supply curve is sloping upward as there is a positive relationship between the price and quantity supplied
  • Rational profit maximising producers would want to supply more as prices increase in order to maximise their profits

Individual & Market Supply

• Market supply is the combination of all the individual supply for a good/service
  • It is calculated by adding up the individual supply at each price level
    
• Individual & market supply can also be represented graphically
  
• Market supply for smart phones in December is predominantly the combination of iPhone & Samsung supply

Diagram Analysis

• In New York City, the market supply for smart phones in December is predominantly the combination of iPhone & Samsung supply
• At a price of $1000, the supply of iPhones is 300 units & the supply of Samsung phones is 320 units
• At a price of $1,000, the market supply of smart phones in New York City during December is 620 units

Movements Along a Supply Curve

• If price is the only factor that changes (ceteris paribus), there will be a change in the quantity supplied (QS)
  • This change is shown by a movement along the supply curve
    

A supply curve showing an extension in quantity supplied (QS) as prices increase & a contraction in quantity supplied (QS) as prices decrease

Diagram Analysis

• An increase in price from £7 to £9 leads to a movement up the supply curve from point A to B
  • Due to the increase in price, the quantity supplied has increased from 10 to 14 units
  • This movement is called an extension in QS
• A decrease in price from £7 to £4 leads to a movement down the supply curve from point A to C
  • Due to the decrease in price, the quantity supplied has decreased from 10 to 7 units
  • This movement is called a contraction in QS

Shifts of the Supply Curve

• There are several factors that will change the supply of a good/service, irrespective of the price level. Collectively these factors are called the conditions of supply
• Changes to any of the conditions of supply shifts the entire supply curve (as opposed to a movement along the supply curve)
  

A graph that shows how changes to any of the conditions of supply shifts the entire supply curve left or right, irrespective of the price level

• For example, if a firm's cost of production increases due to the increase in price of a key resource, then there will be a decrease in supply as the firm can now only afford to produce fewer products
  • This is a shift in supply from S to S1. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units

An Explanation of How Each of the Conditions of Supply Shifts the Entire Supply

Curve at Every Price Level