Karthikeyan

What is Supply

• Supply is the willingness and ability of producers to sell a good or service at a given price in a given period of time.

• It shows how much producers are ready to sell at different prices.

Law of Supply

• As the price of a good increases, the quantity supplied also increases.

• As the price decreases, the quantity supplied decreases.

• This happens because higher prices make production more profitable, so producers want to sell more.

Supply Curve

• A supply curve is an upward-sloping line that shows the direct relationship between price and quantity supplied.

• It slopes from left to right, showing that when price rises, supply rises.

• Example: If the price of ice cream rises, more producers will make and sell it.

Movement Along the Supply Curve

• When price changes, the producer moves along the same supply curve.

• This is called a change in quantity supplied.

• Price increases → Move up the curve → More supplied

• Price decreases → Move down the curve → Less supplied

Shifts and Determinants of Supply

Shift in the Supply Curve

• Supply can change even when the price stays the same.

• This causes the whole supply curve to shift.

• Rightward shift: Increase in supply (producers can supply more at every price).

• Leftward shift: Decrease in supply (producers can supply less at every price).

Determinants of Supply

These are the factors that cause the supply curve to shift other than price:

1. Changes in production cost

   • If production costs rise → supply decreases (curve shifts left).

   • If costs fall → supply increases (curve shifts right).

2. Technology improvement

   • Better technology increases production efficiency and raises supply.

3. Natural factors

   • Weather, climate, and natural disasters can affect production levels.

4. Availability and price of resources

   • If resources (like labour or raw materials) are easily available, supply increases.

   • If resources become scarce or expensive, supply decreases.

5. Taxes and subsidies

   • Higher taxes raise costs → supply decreases.

   • Subsidies reduce costs → supply increases.

6. Number of producers (firms)

   • More firms in the market → total supply increases.

   • Fewer firms → supply decreases.

7. Expectations of future prices

   • If producers expect prices to rise in the future, they may reduce supply now.

   • If they expect prices to fall, they may increase supply now.

8. Government regulations

   • More rules or restrictions can increase costs and reduce supply.

   • Relaxed regulations can increase supply.

Joint and Competitive Supply

• Joint supply: Two goods are produced together (for example, meat and leather).

• Competitive supply: Resources used to make one good cannot make another (for example, wheat and corn).

Importance of Supply

• Helps determine market price with demand.

• Helps firms decide production levels.

• Helps the government design tax and subsidy policies.