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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
      Supply | Economics for Grade 12
  • Individual & market supply can also be represented graphically
    Supply | Economics for Grade 12
  • 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
      Supply | Economics for Grade 12

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)
    Supply | Economics for Grade 12

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

Supply | Economics for Grade 12Supply | Economics for Grade 12

The document Supply | Economics for Grade 12 is a part of the Grade 12 Course Economics for Grade 12.
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