Topic 7: Supply

1. Meaning

Supply is the quantity of a good or service that producers are willing and able to offer for sale at a given price in a given period of time.

2. Law of Supply

Other factors remaining constant, the higher the price of a good, the greater the quantity supplied; the lower the price, the smaller the quantity supplied.

Supply Schedule (Example)

The supply curve slopes upward from left to right.

Why the Curve Slopes Upward

1. Higher prices mean higher profits, so producers supply more.
2. New firms enter the market.
3. Producers can cover rising costs of producing more units.

3. Determinants of Supply (Shift Factors)

1. Cost of production (wages, raw materials, rent).
2. Technology: reduces cost and raises output.
3. Weather and natural factors (especially in farming).
4. Taxes and subsidies.
5. Number of sellers in the market.
6. Price of related goods (producers may switch to a more profitable good).
7. Government policy and regulations.
8. Expectations about future prices.
9. Transport and infrastructure.

4. Movement vs Shift of the Supply Curve

• Increase in supply: shifts right. Decrease in supply: shifts left.

5. Exceptions to the Law of Supply

1. Perishable goods: must be sold even if the price falls.
2. Agricultural produce: supply depends on weather and seasons.
3. Goods in fixed supply (e.g. rare paintings, land).
4. Backward-bending supply of labour: workers may reduce hours as wages rise.
5. Expectation of further price rise: sellers may hold back stock.

6. Types of Supply

• Joint supply (e.g. beef and hides)
• Competitive supply (e.g. wheat and maize on the same land)
• Composite supply
• Market supply