2.2.

1: law of supply

● Producers: one of the people, companies countries that make, grow, or supply
goods, services or resources in a market
● Supply is the quantity of of a good or service that producers are willing and able
to offer at various prices during a specific time period, ceteris paribus
● Individual supply: the supply of one product by one firm at every price
● Law of supply: as the price of a product increases, the quantity supplied will
usually increase, ceteris paribus
● Market supply: the sum of all individual supplies of a product at every price

2.2.2: assumptions underlying the law of supply

The law of diminishing marginal returns (output/product)

● Marginal returns: refers to the additional output gained from adding an additional
unit of input to a production process
● The law of diminishing marginal returns states that adding more of one factor of
production, while holding at least one other factor of production constant, will at
some point yield lower marginal returns (output/product)
● When marginal returns (output/product) decline, this does not mean that total
output is declining, it simply means that an additional unit of output (such as one
worker) produces a lower increase in output than the previous worker

Increasing marginal costs of production

● Marginal costs refers to the cost of producing one more unit of a good
● In perfectly competitive markets in the short run , we assume that marginal costs
for a firm and for an industry increase as output increases and marginal returns
decrease
 2.2.3: movements along the supply curve and shifts in the supply curve

● Changes in prices leads to a movement along the curve

● A change in other factors leads to a shift on the curve

2.2.4: Non price determinants of supply: costs of production, technological

change, future expectations, number of firms in the market

Costs of production
● Change in factors of production has an important effect on the supply
● If there is in increase in the cost of production of a good or service, the cost of
wheat to produce will increase, therefore, the supply will decrease
● This leads to an inwards shift in supply curve

Technological change
● Improvements in technology causes increase in supply due to increased
productivity
● This will shift the supply curve to the right

Future expectations

Expectation about future prices:

● If firms expect the prices of goods/services they sell to increase in the future they
might not sell it but store it (hoarding)
● Hoarding: accumulating or storing a good or resource in order to prevent its
release into a market for self-use or profit-making purposes
● However, if sellers expect prices to decrease in the future, they might increase
supply to avoid lower prices and revenue

Expectations about the future of the economy:

● If producers expect the economy to do well, they will expect that people will have
more money to spend and that the consumption will increase
● They may increase supply to meet this possible future demand
The number of firms in the market:
● When the number of firms that offer the same good increases, the market supply
also increases, shifting the supply curve outwards
● Demographic changes can also change the number of firms in the market
● For example: if the population of dhaka increases through internal migration, we
will likely see more restaurants opening as some of the residents will provide
those services

2.2.5: non price determinants of supply: prices of related goods

Joint supply
● Joint supply occurs when two or more goods are derived from the same product,
so that is not possible to produce more of one without producing more of the
other
● The second good is called by product
● Animal products are an example of joint supply, such as milk and wool from
sheep. If the price of sheep milk increases and farmers increase the quantity of
supplied in response, it is likely the supply of wool increases too

Competitive supply
● Competitive supply: when the production of two goods uses similar resources
and processes. When a supplier produces more of one good, it means
producing less of another
● Being able to produce more than one good with similar resources and processes
means that firm is flexible
● When the price of one good reduces, the supply decreases (law of supply)
● Example: production of two different types of alpine skis
● As the popularity of of twin-tip increases, the price increases, therefore the
supply
● Supply for flat-tail skis will decline
 2.2.6: non price determinants: government intervention

Indirect taxes
● An indirect tax is a tax imposed on a good or service
● When indirect taxes are imposed, the cost if factors of production for firms
increase, causing supply decline

Subsidies
● A subsidy is an amount of money granted by the government to a firm or industry
● Subsidies reduce the cost of production, increasing the supply

Regulations
● A regulation is a rule made by the government that requires certain behaviour of
individuals, firms or other groups
● Regulations are introduced to protect consumers, workers, for health/safety, or to
protect the environment
● These rules usually increase the cost of production, therefore a decrease in
supply
● For example: using air and water filters to reduce pollution