2.4 Supply
2.4.1 DEFINITION OF
SUPPLY
2.4.2 PRICE AND
SUPPLY
2.4.3 INDIVIDUAL
AND MARKET
SUPPLY
2.4.4 CONDITIONS
OF SUPPLY
• How many of you
would be
prepared to offer
their services
(e.g., to wash
teachers’ cars) at
different prices.
2.4 Supply
• Graph a Supply Curve |
Interactive Economics
Practice (mru.org)
The
supply
curve
What
is Supply?
• Supply is the quantity of a product that
suppliers are
– willing to sell
– Able to sell
– At various prices
– Over a period of time
2.4 Supply
✓ 2.4.1 definition of supply
• 2.4.2 price and supply
• 2.4.3 individual and market supply
• 2.4.4 conditions of supply
The law of Supply
❑ When goods are cheap,
producer sell less
❑ When goods are
expensive, producer
sell more
The
The Supply
Demand Curve
Curve
200
S
Price
160
120
80
40
0 10
20 30 40 500 60 70
Quantity
The Supply
curve shows the
quantity
supplied at any
given price.
The Supply
Schedule
The Supply Schedule shows quantities
supplied at given price
Price of a Quantity
supplied
PC($)
per week
800
1000
1000
2000
1200
3000
1400
4000
1600
5000
2.4 Supply
✓ 2.4.1 definition of supply
✓ 2.4.2 price and supply
• 2.4.3 individual and market supply
• 2.4.4 conditions of supply
•
Individual Supply - the supply of
one Firm/ Producer
•
Market Supply is the total Supply
of the Market
Individual Firm and Market Supply (multiple
identical firms) - EconGraphs
2.4 Supply
✓ 2.4.1 definition of supply
✓ 2.4.2 price and supply
✓ 2.4.3 individual and market supply
• 2.4.4 conditions of supply
Discuss the
expected change in
supply due to the
given factor and
analyse 2 reasons :
Scenario
Factor
Bread
Cost of production
Cars
Government Policies
Smartphones
Number of suppliers
Clothing
Natural disasters
Laptops
Technological
advancements
Pharmaceuticals
Government policies
Example 1: Bread
Factor: Cost of Production
Discussion:
•Increase in Wheat Prices: If the price of wheat, a key ingredient in bread, increases,
the cost of production for bread will rise. This could lead to a decrease in the supply of
bread as producers may not be able to produce as much at the higher cost.
•Technological Advancements: If new baking technology is introduced that makes the
production process more efficient, the cost of production could decrease. This would
likely increase the supply of bread as producers can make more bread at a lower cost.
Example 1: Bread
Factor: Cost of Production
Discussion:
•Increase in Wheat Prices: If the price of wheat, a key ingredient in bread, increases, the cost of production for bread will rise. This could lead to a decrease in the
supply of bread as producers may not be able to produce as much at the higher cost.
•Technological Advancements: If new baking technology is introduced that makes the production process more efficient, the cost of production could decrease.
This would likely increase the supply of bread as producers can make more bread at a lower cost.
Example 2: Cars
Factor: Government Policies
Discussion:
•Environmental Regulations: Stricter environmental regulations may require car manufacturers to invest in cleaner technologies, increasing production costs. This
could reduce the supply of cars as manufacturers adjust to the new regulations.
•Subsidies for Electric Vehicles: If the government provides subsidies for electric vehicle production, it could lower the cost for manufacturers. This would likely
increase the supply of electric cars as manufacturers take advantage of the subsidies.
Example 3: Smartphones
Factor: Number of Suppliers
Discussion:
•New Entrants in the Market: If new companies enter the smartphone market, the number of suppliers increases. This competition can lead to an increase in the
supply of smartphones as more companies produce and sell them.
•Supplier Exit: If a major supplier exits the market due to financial difficulties, the number of suppliers decreases. This could reduce the supply of smartphones as
there are fewer companies producing them.
Example 4: Clothing
Factor: Natural Disasters
Discussion:
•Floods in Cotton-Producing Regions: If floods damage cotton crops, the raw material for many clothing items becomes scarce. This increases the cost of
production and can decrease the supply of clothing.
•Factory Fire: If a fire destroys a major clothing factory, the immediate supply of clothing from that factory will decrease. This can lead to a temporary reduction in
the overall supply of clothing in the market.
Example 5: Laptops
Factor: Technological Advancements
Discussion:
•New Processor Technology: If a new, more efficient processor technology is developed, it can reduce the cost of producing laptops. This would likely increase the
supply of laptops as manufacturers can produce more at a lower cost.
•Software Innovations: If new software innovations make laptops more desirable, manufacturers might increase production to meet the higher demand, thus
increasing the supply.
Example 6: Pharmaceuticals
Factor: Government Policies
Discussion:
•Patent Expiry: When a patent for a popular drug expires, generic manufacturers can produce the drug, increasing the number of suppliers and the overall supply of
the drug.
•Regulatory Approvals: If a new drug receives regulatory approval, the supply of that drug will increase as it becomes available for production and sale.
Changes in Supply
Curve
• The changes can be
• Movement along Supply
Curve
• Shifts of Supply Curve
Movement of
Supply Curve
S
B
Price
$30
$15
A
1,250
Quantity
1,500
As the price
changes, the
quantity supplied
will also change.
Shift of Supply
Curve
S2
S
Price
S1
$15
A
B
1,250
Quantity
1,500
At the same
price, a
different
quantity is
supplied.
Taxes
Subsidies
Cost of
Production
Why Supply
Changes?
Taste &
Fashion
Other
factors
Example: Abu Dhabi’s Masdar initiative provides financial support for solar
panel installation and renewable startups.
Example: Abu Dhabi’s Masdar initiative
provides financial support for solar panel
installation and renewable startups.
•Emirati households benefit from reduced
electricity and water tariffs, especially for
residential usage.
•Example: A family using electricity under a
certain limit pays substantially less than
commercial rates.
Cost of Production
(COP)
• COP↑ → supply ↓
&
• COP ↓ → supply ↑
• COP may change
due to change in…….
• Wages (Salary)
• Productivity
(output per
worker)
• Raw material
• Energy costs
(Electricity)
• Transport costs
Income
Taxes
If government puts taxes → COP ↑
→ Supply ↓
Population
Subsidies
• If the government gives a subsidy →
COP ↓ → Supply ↑
Price of Related Goods
Price of Related Goods
Related Goods
Profitability of
goods in joint
supply
Profitability of
substitutes in
supply
The Profitability of Goods
in Joint Supply
•
DVD Players and DVD are
produced together.
•
When the Price of DVD Players
↓ → Demand of DVD Players ↑
→ So more DVDs are needed →
So the Supply of DVDs ↑) also
increase.
The Profitability of Substitutes in Supply
•
If Mango Juice becomes
more PROFITABLE than
Apple Juice, producers
will produce more Mango
juice .
So
Supply of Mango juice ↑
Supply of Apple Juice ↓
&
Other Factors
•
•
•
•
War
Weather - Earthquakes , floods & fire
The breakdown of machinery
Expectations of future prices changes
• If producers expect prices ↑ → Supply
↓ now & will build up STOCKS
• If producers expect prices ↓ → Supply
↑ now & reduce production
WHO DECIDES THE PRICE OF THE PRODUCT?
Demand & Supply of a product
determines the PRICE of a product!!!
When
Demand = Supply →
Equilibrium
Demand ≠ Supply →
Disequilibrium
Demand = Supply
(Equilibrium Point)
27
Conditions of supply
Surplus
Shortage
Supply >
Demand
Demand
> Supply
Why the Equilibrium Changes?
–Change in Demand
–Change in Supply
–Change in Demand & Supply
Shifts in Supply or Demand | Interactive Practice by MRU
2.4 Supply
✓ 2.4.1 definition of supply
✓ 2.4.2 price and supply
✓ 2.4.3 individual and market supply
✓ 2.4.4 conditions of supply
Explain two reasons why
the supply of bananas
may decrease. (4)
• Logical explanations which might include:
• a period of bad weather/natural disaster (1) this
would decrease the crop (1)
• a rise in costs of production (1) e.g. higher wages
paid to farm workers would make it more expensive
to produce the product (1)
• a government tax (1) this acts as a disincentive/is
an extra cost (1)
• the removal of a subsidy (1) would reduce the
incentive to produce the product (1)
• a change in the price of other crops (1) may
encourage a shift of resources (1)
• change in the availability of land (1) e.g. flooding
may reduce the supply.
The economic problem means that countries have to decide what to produce.
Ghana uses much of its agricultural land to grow cocoa. Cocoa is sold to chocolate
producers. The world’s main chocolate producer in 2019 was a US firm with a 14%
share of the global market. That firm was the largest seller of chocolate in the US
and, if it merges, may become a monopoly.
Analyse the causes of a shift to the right in the supply curve of chocolate. [6]
Activity 2.4
SDG 12 – Responsible Consumption and Production
Learners consider the extraction of oil and gas from the North Sea between the
United Kingdom (UK) and the North-West European mainland.
•
What happened to the supply of oil from the North Sea between 1974 and
2000?
•
What has happened since?
•
What is predicted to happen in the future?
•
Why have many governments, including the UK, subsidised solar and wind
generating industries?
Draw supply curve diagrams to illustrate the effect of these changes on the
supply of the various forms of energy.
Useful background information can be found at:
www.crystolenergy.com/assessing-future-north-sea-oil-gas/ and
http://theoildrum.com/node/4112 (especially the charts and maps, the text can be
ignored).