  After 2 mins 2.2 The Role of Supply

 Supply  The relationship between the various possible prices of a product and the quantities of the product that businesses are willing to supply  The Law of Supply  There is a direct relationship between a product’s quantity supplied and its price  Higher prices for a commodity will make businesses want to increase the quantity to result in higher revenue The Role of Supply

 Supply Schedule  A table that shows possible combinations of prices and quantities supplied of a product  Supply Curve  A graph that expresses possible combinations of prices and quantities supplied of a product The Supply Curve

 Factors that cause changes in quantity supplied are called Supply Factors  The 6 main supply factors are:  The number of producers  Resource prices  State of technology  Changes in nature  The prices of related products  Producer expectations  Again, note that while considering each factor, you must assume that all other factors remain constant. Changes in Supply

 Number of Producers  Increase in the number of businesses in an industry causes an increase in supply  Higher quantity supplied at each price  supply curve shifts to the right  Similarly, a decrease in supply would shift the supply curve to the left Supply Factors

 The supply schedule shows that when the price of this item falls, quantity supplied also falls, as the company finds it profitable to produce fewer units  Positively sloped supply curve indicates a direct relationship between price and quantity supplied The Market Supply Schedule and Curve

 When the number of houses increase in an area, the number of houses increases at every possible price, shifting the supply curve to the right from S to S1  A decrease in the number of houses decreases the quantity of houses supplied at every price, shifting the supply curve left from S to S2. Changes in Supply

 Resource Prices  If the price of a resource used to make a good increases, fewer units of that product can be produced for the same expenditure  Businesses cut back on production, and supply curve shifts to the left  State of Technology  Newer technology means more efficient production methods – thus, more units can be produced at every price, so supply curve will shift to the right  e.g. using a better grain fertilizer will cause the supply of barley to increase Supply Factors Cont’d

 Changes in Nature  Early frost, record high temperatures, flood, earthquake, etc. can affect supply of many products especially agricultural  Prices of Related Products  A product’s supply can be influenced by changes in prices of other products  Producer Expectations  If producers expect the price of the item they sell to change in the near future, this affects the product’s current supply  e.g. if barley farmers expect barley prices soon to fall, they will provide as much of the product as possible now Supply Factors Cont’d

 E-commerce is making some markets more competitive  Consumers are able to shop competitively on their computers and phones  Consumers are now accessing businesses globally rather than just locally Reflect

 Change in quantity supplied: moving up/down the dark red curve  Change in supply: moving from the left, dark red curve to the right pink curve Change in Quantity Supplied versus Change in Supply