Supply

Supply refers to the amount of a good or service firms or producers are willing to make and sell and different prices.

Quantity supplied refers to the amount of a good or service producers are willing AND able to make and sell in the market. Quantity supplied is measured per period of time.

Market supply of a product refers to the sum of all the individual supply curves of producers competing to supply that product.

Generally, the supply curve for any product will slope upwards. Showing that as price rises, quantity supply rises or extends and as price falls, quantity supplied falls or contracts. Price and supply are directly proportional

Increase in supply means that producers are now more willing and able to supply the product than they were before at all possible prices. The supply curve will shift outwards or to the right.

Decrease in supply means that producers are now less willing and able to supply the product than they were before at all possible prices. The supply curve will shift inwards or to the left.

Reasons for shift in supply curves

1. Changes in the cost of factors of production

The prices of factors of production such as raw materials have a large role in increasing or decreasing supply. If the cost of factors of productions rises, the supply curve will shift inwards or leftwards as demonstrated in graph 4. Whereas, if the cost of factors of productions fall, the supply curve will shift outwards or rightwards as demonstrated in graph 3.

2. Changes in the prices and profitability of other goods and services

Let's take the example of good X. If other goods and services are more profitable than good, the suppliers will allocate more resources to other products. This will result in a decrease in supply. Contrastingly, If other goods and services are less profitable than good, the suppliers will allocate more resources to the production of good X. This will result in an increase in supply of good X.

3. Technological advancements

If technology advances, the costs of production decreases and increases the amount of goods and services a firm can produce, thus increasing the supply for a product.

4. Business optimism and expectations

In a market economy, firms will allocate resources only to the production of goods and services that will earn them maximum profit. Fears of an economic downturn may cause some firms to move less resources into the production of goods and services. Conversely, expectations of an economic recovery could cause firms to move more scarce resources into production of goods and services.

5. Subsidies provided

If governments provide more subsidies to producers, they will be motivated to produce more. A subsidy is a financial aid or assistance provided by the government to a producers to reduce their cost of production and hence, encourage them to produce more.

6. Global factors

A variety of external factors could affect supply. These cannot be controlled. For example the weather/natural disasters.