DLIINI1ICN CI SUL

supp|y ls Lhe amounL of some producL producers are wllllng and able Lo sell aL a glven prlce all oLher
facLors belng held consLanL usually supply ls ploLLed as a supply curve showlng Lhe relaLlonshlp of prlce
Lo Lhe amounL of producL buslnesses are wllllng Lo sell
A supply curve ls slmply a supply schedule presenLed ln graphlcal form 1he sLandard presenLaLlon of a
supply curve has prlce glven on Lhe ?axls and quanLlLy supplled on Lhe xaxls
Economists describe supply as the relationship between the quantity oI a good or service
consumers will oIIer Ior sale and the price charged Ior that good. More precisely and Iormally
supply can be thought oI as "the total quantity oI a good or service that is available Ior purchase
at a given price."





















Supply curve
%he relationship oI price and quantity supplied can be exhibited graphically as the supply curve.
%he curve is generally positively sloped. %he curve depicts the relationship between two
variables only; price and quantity supplied. All other Iactors aIIecting supply are held constant.
However, these Iactors are part oI the supply curve and are present in the intercept or constant
term.
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Factors affecting supply
Innumerable Iactors and circumstances could aIIect a seller's willingness or ability to produce
and sell a good. Some oI the more common Iactors are:
Goods own price: %he basic supply relationship is between the price oI a good and the
quantity supplied. Although there is no "Law oI Supply", generally, the relationship is
positive or direct meaning that an increase in price will induce and increase in the
quantity supplied.
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Price of related goods:
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For purposes oI supply analysis related goods reIer to goods
Irom which inputs are derived to be used in the production oI the primary good. For
example, Spam is made Irom pork shoulders and ham. Both are derived Irom Pigs.
%hereIore pigs would be considered a related good to Spam. In this case the relationship
would be negative or inverse. II the price oI pigs goes up the supply oI Spam would
decrease (supply curve shiIts up or in) because the cost oI production would have
increased. A related good may also be a good that can be produced with the Iirm's
existing Iactors oI production. For example, a Iirm produces leather belts. %he Iirm's
managers learn that leather pouches Ior smartphones are more proIitable than belts. %he
Iirm might reduce its production oI belts and begin production oI cell phone pouches
based on this inIormation. Finally, a change in the price oI a joint product will aIIect
supply. For example beeI products and leather are joint products. II a company runs both
a beeI processing operation and a tannery an increase in the price oI steaks would mean
that more cattle are processed which would increase the supply oI leather.
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Conditions of Production. %he most signiIicant Iactor here is the state oI technology. II
there is a technological advancement in one's good's production, the supply increases.
Other variables may also aIIect production conditions. For instance, Ior agricultural
goods, weather is crucial Ior it may aIIect the production outputs.
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Expectations: Sellers expectations concerning Iuture market condition can directly aIIect
supply.
|5|
II the seller believes that the demand Ior his product will sharply increase in the
Ioreseeable Iuture the Iirm owner may immediately increase production in anticipation oI
Iuture price increases. %he supply curve would shiIt out. Note that the outward shiIt oI
the supply curve may create the exact condition the seller anticipated, excess demand.
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Price of inputs: Inputs include land, labor, energy and raw materials.
|7|
II the price oI
inputs increases the supply curve will shiIt in as sellers are less willing or able to sell
goods at existing prices. For example, iI the price oI electricity increased a seller may
reduce his supply because oI the increased costs oI production. %he seller is likely to raise
the price the seller charges Ior each unit oI output.
|6|

Number of suppliers - the market supply curve is the horizontal summation oI the
individual supply curves. As more Iirms enter the industry the market supply curve will
shiIt out driving down prices.
Government policies and regulations:Government intervention can have a signiIicant
eIIect on supply.
|8|
Government intervention can take many Iorms including
environmental and health regulations, hour and wage laws, taxes, electrical and natural
gas rates and zoning and land use regulations.
|9|

%his list is not exhaustive. All Iacts and circumstances that are relevant to a seller's willingness
or ability to produce and sell goods can aIIect supply.
|10|
For example, iI the Iorecast is Ior snow
retail sellers will respond by increasing their stocks oI snow sleds or skis or winter clothing or
bread and milk.


O ) Mankiw, N. Gregory (1998). Principles of Economics, Wall Street Journal Edition. Dryden
Press, San Diego. pp. 7173. ISBN 0030982383.
O `
,

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Melvin & Boyes, Microeconomics 5th ed. (Houghton MiIIlin 2002)
O ) Ayers & Collins, Microeconomics (Pearson 2003) at 66.
O ) Rosen, Harvey (2005). Public Finance, p. 545. McGraw-Hill/Irwin, New York. ISBN 0-07-
287648-4.
O ) Goodwin, N, Nelson, J; Ackerman, F & WeissskopI, %: Microeconomics in Context 2d ed.
Page 83 Sharpe 2009
O `
,

-
Goodwin, Nelson, Ackerman, & WeissskopI, Microeconomics in Context 2d ed. (Sharpe
2009) at 83.
O ) Samuelson & Nordhaus, Microeconomics, 1

Like the law oI demand, the law oI supply demonstrates the quantities that will be sold at a
certain price. But unlike the law oI demand, the supply relationship shows an upward slope. %his
means that the higher the price, the higher the quantity supplied. Producers supply more at a
higher price because selling a higher quantity at a higher price increases revenue.



A, B and C are points on the supply curve. Each point on the curve reIlects a direct correlation
between quantity supplied (Q) and price (P). At point B, the quantity supplied will be Q2 and the
price will be P2, and so on. (%o learn how economic Iactors are used in currency trading, read
Forex Walkthrough. Economics.)

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