Download IB Economics - Introduction to Supply

IB Economics Unit 2
Chapter 3 Demand and Supply
Part 2 – Supply
Supply
• What is supply?
– The amount of goods and services that
producers are willing and able to supply at
any given price
– The Law of Supply
• The supply NORMALLY slopes upwards from
left to right
• Supply curves are normally curved and get
steeper as price rises, however we usually draw
them as straight lines to keep things simple
– Increase in Supply
• Shifts and movements along
Supply
• Relationship between supply and price
– as price rises, firms supply more
• it is worth incurring the extra unit costs
• they switch from less profitable goods
• in the long run, new firms will be encouraged to
enter the market
• The supply curve
Market supply of potatoes (monthly)
100
e
Supply
d
Price (pence per kg)
80
P
a 20
b 40
c 60
d 80
e 100
c
60
b
40
a
20
0
0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
Q
100
200
350
530
700
Supply
• Non price determinants of supply
– costs of the factors of production
• e.g wages or raw materials
– profitability of alternative products
– profitability of goods in joint supply
– nature and other random shocks
– aims of producers
– expectations of producers
– The state of technology
– Government policy or intervention
• Movements along and shifts in the supply
curve
Movement along a supply curve
P
S0
P2
P1
O
Q
Q1 Q2
THINK: What would cause movements along?
Shifts in the supply curve
P
S2
Decrease
S0
S1
Increase
O
Q
THINK: What would cause these shifts?