Supply AS Economics
What is supply? Supply is the quantity of a product that producers are willing and able to provide at different market prices over a period of time It is what they provide from scarce resources available Through supply, producers are aiming to meet the unlimited wants of consumers
Tangible and intangible goods Tangible goods are ones which you can see and touch e.g. mobile, food, clothing Intangible goods (usually services) are things that you cannot see or touch e.g. banking, hairdressing, transport
Why do suppliers supply? Suppliers aim to meet the needs of consumers Usually suppliers are doing this to make a profit Profit is the difference between revenue and total cost Many firms have profit maximisation as one of their objectives
Calculating profit Cost per mobile: £5 Selling price: £10 Number produced and sold: 100 Costs = 100 x £5 = £500 Revenue = 100 x £10 = £1,000 Revenue – Cost = £1,000 - £500 = £500
Calculating profit Cost of book: £2 Selling price: £3 Number made and sold: 200 Costs = 200 x £2 = £400 Revenue = 200 x £3 = £600 Revenue – Cost = £600 - £400 = £200
Supply and factors of production A supplier’s function is to combine the factors of production in an efficient and profitable way Factors of production in a mobile phone Land – location, materials Labour – right skilled people Capital – assembly of phones, money to start off Enterprise – business skills and design
Nokia and its use of FOP Nokia is a Finnish based mobile phone firm Labour costs in Finland are high, compared to developing economies like China and India Nokia uses capital intensive production in Finland e.g. with state of the art machines replacing labour Labour intensive methods are used in lower wage countries e.g. China
Relationship between price and quantity supplied Suppliers will supply more the higher the price This is because suppliers will make more of a profit Consequently, if price falls then the quantity supplied falls
Supply Curve Price £ Quantity Bought and Sold (000s) Supply £3 200 £7 800 The supply curve slopes upwards from left to right indicating a positive relationship between supply and price. As price rises, it encourages producers to offer more for sale whereas a fall in price would lead to the quantity supplied to fall.
Supply Schedule Price per personQuantity Supplied 5001, , , , ,
The Supply Curve Changes in any of the factors OTHER than price cause a shift in the supply curve A shift in supply to the left – the amount producers offer for sale at every price will be less A shift in supply to the right – the amount producers wish to sell at every price increases HINT: Be careful to not confuse supply going ‘up’ and ‘down’ with the direction of the shift!
The Supply Curve Price £ Quantity Bought and Sold (000s) Supply £4 400 S1 100 S2 900 Changes in any of the factors affecting supply other than price will cause the entire supply curve to shift. A shift to the left results in a lower supply at each price; a shift to the right indicates a greater supply at each price.
Activity PriceQuantity Supplied
Factors which affect supply Costs of production Size and nature of the industry (e.g. competition) Lack of raw materials (oil, ore, coal, gas, diamonds, land Government policy e.g. VAT/Tax