Download Topic 1.2.4 Supply student version

What determines the supply of a
good or service in a market?
Q: Why is advice so cheap?
A: Because supply always exceeds
demand.
1.2.4 Unit content
Students should be able to:
• Define supply
• Explain how a change in price causes a
movement along a supply curve
• Distinguish between movements along a
supply curve and shifts of a supply curve
• Assess the factors that may cause a shift
in the supply curve
Definition of actual and planned supply
What is supply?
Why may ‘planned supply’ be different from
‘actual (realised) supply’?
The theory of supply
In theory, at higher prices a ______ quantity
will generally be supplied than at lower
prices, ceteris paribus, and at lower prices a
________ quantity will generally be supplied
than at higher prices, ceteris paribus.
So we have higher supply at higher prices
and vice versa.
Again, it is important to assume that ‘all
other things remain constant’.
What does the supply show?
The supply curve shows the relationship
between the amount offered for sale and
the price.
What is the main objective of firms?
So what will they want to do if prices rise?
Why is the supply curve upward sloping?
Movement along a supply curve
Movements along the supply curve are
caused by changes in price. This is called
an extension in supply when the quantity
supplied increases as the price increases.
A contraction in supply is when the
reverse happens; as price falls the quantity
supplied falls.
Shifting a supply curve
What happens to the supply curve if
factors OTHER than price change?
Supply and lower costs
Similarly if something happens that
decreases a firm’s costs (e.g. a subsidy
from the government) then the firm’s supply
curve shifts to the __________
Why?
What factors shift supply ?
Changes in income and supply
Shifting the supply curve
NOTE – if demand changes this will shift
demand but not supply. A change in
demand will cause a ____________ along
the supply curve not a shift.
So changes in income (e.g. increased
economic growth) or increased demand for
certain goods will NOT MOVE the supply
curve as they won’t affect the costs for
firms.
Joint supply
Joint supply occurs when a product is
made as a by-product of the manufacturing
process. For example an increase in the
demand for beef and the subsequent
extension of supply also increases the
supply of leather.
Therefore if goods are in joint supply there
might be a change to the price of one of
those goods caused by changes in demand
for the other.