THE MARKET Concept of Supply

EXAMINING SUPPLY  Supply is defined as the quantities that sellers will offer for sale at various prices during a given point in time.  Like consumers, suppliers react to price changes but in a completely opposite way: that is, as price rises, they want to supply more.  Why do you think this is?  Profit

 Changes take place of the supply side of the market as the number and variety of products available to purchase is constantly increasing.  One example of this change is the influx of cell phones that can be found in the marketplace.

 Often products disappear as quickly as they appear. The rise of the ball-point pen has nearly eliminated the use of fountain pens. Even large sized vehicles are far less common compared to the popularity of the compact vehicles.

LAW OF SUPPLY AND DEMAND  The Law of Demand: The quantity demanded varies inversely with price, as long as other things do not change.  The Law of Supply: The quantity supplied will increase if price increases and fall if price falls, as long as other things do not change.

REMINDER  Much the same as demand, when we look at how supply changes in the marketplace we look at a change in one factor while all other remain constant. This is to simplify the process for the purpose of this class.

FACTORS THAT AFFECT SUPPLY  Price – The higher the price a supplier can receive for a product the more of the product the supplier will offer to the market. This makes sense because suppliers want to make as much profit as possible. The opportunity cost of not providing as product is greater when the price is higher.

 Production Cost – There are a variety of expenses involved in supplying products to the marketplace including cost of raw materials, transportation, rent, wages, salaries, machines and equipment, taxes… A change in any of these costs can influence the supply of a product.

 Technology Changes – Improvements in technology can also be a factor in supple changes. As new tech and innovations are introduced many supplies can improve supply.

 Government Regulation – All levels of government can influence the level of supply of certain products as they can enact regulation that limit the production of certain crops. These regulations can influence the supply of various products.

 Psychology of Owner – The individual owners goals and motivations may affect the supply of certain products. Ultimately, it is a decision that they can make, despite the assumption that owners want to make as much profit as possible.

 Weather Conditions – Especially when you consider the agricultural industry in particular, weather conditions can potentially have a huge impact on supply of many products.

SUPPLIER RESPONSE TO PRICE CHANGE  When the price of a product is higher the quantity supplied to the market increases.  Suppliers want to get a much product into the market but at some point the cost of increasing the supply goes up. Since costs increase a higher price must be obtained in order for the supply to be increased.

 With an increase in costs to a supplier they are now faced with a decrease in supply. In contract, any change that will lower cost will move the supply curve to the right and will result in an increase in supply.  Any constant factor that changes will result in a change in supply. Only the price of the product will affect quantity supplied.