# Supply

## The law of supply

Supply: is the total amount of goods and services that producers are willing and able to purchase at a given price in a given time period.

The law of supply: states that "as the price of a product rises, the quantity supplied of the product will usually increase, ceteris paribus".

• price rises but costs do not change → profitability increases → supply more (increase profits)

## The supply curve

Supply curve: represents the relationship between the price and the quantity supplied of a product, ceteris paribus.

Figure 1.3 - The supply curve

## The non-price determinants of supply (factors that change supply or shift the supply curve)

The non-price determinants of supply (shifting):

1. Changes in costs of factors of production: Increase in costs of production → supply shifts to the left
• land
• labor
• capital
• entrepreneurship (human capital or intellectual capital)
2. State of technology: Improvements in technology supply shifts to the right (natural disasters may move the technology backwards → supply shifts to the left)
3. Price of relating product (joint/competitive supply): if producer could produce another product with higher profit, due to limited resources, the supply for the existing product decreases.
4. Expectations: if demand for the product is likely to rise supply increases (ready to supply more in the future and gain higher profit)
5. Indirect taxes & subsidies:
• Indirect taxes → increase costs → supply shifts left
• Subsidies reduce costs → supply shifts right
6. Number of firms in the market: more firms producing → supply shifts to the right → more are being supplied at each price level

## Movements along and shifts of the supply curve

Movements along the supply curve:

• A change in price of the good itself leads to a movement along the existing supply curve (price is the axes), while a change in any other determinants of supply will always lead to a shift of the demand curve to either left or to the right.
Figure 1.4 - Movement along and shift of the supply curve

## Linear supply functions, equations and graphs

Linear Supply functions:

Where:

• c = quantity supplied when price is zero
• d = slope of the curve
 Price \$ Calculation Quantity supplied 0 (-30)→ 0 1 (-10)→ 0 2 10 3 30

If:

• c changes shift of supply curve
• d changes change of steepness of supply curve