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Understanding Supply and Its Factors

Supply is the amount of goods and services that producers are willing to sell at various prices, with the Law of Supply stating that higher prices lead to increased supply. Movements along the supply curve can indicate extensions or contractions of supply based on price changes, while shifts in the supply curve are influenced by factors other than price, such as production costs and technological advancements. Key factors affecting supply include the price of the commodity, prices of related goods, production costs, technology, and climate conditions.

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29 views3 pages

Understanding Supply and Its Factors

Supply is the amount of goods and services that producers are willing to sell at various prices, with the Law of Supply stating that higher prices lead to increased supply. Movements along the supply curve can indicate extensions or contractions of supply based on price changes, while shifts in the supply curve are influenced by factors other than price, such as production costs and technological advancements. Key factors affecting supply include the price of the commodity, prices of related goods, production costs, technology, and climate conditions.

Uploaded by

aaryashreeisharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is Supply?

Supply refers to the amount of goods and services firms or producers are willing and able to sell in the
market at a possible price.

Law of Supply
It states that when the price of a commodity rises, the supply for it also increases.
The higher the price for the good or service the more it will be supplied in the market. The reason behind it
is that more and more suppliers will be interested in supplying those good or service whose prices are
rising.

Movement along the Supply Curve


Extension of supply
It refers to the increase in supply of a commodity with the rise in price, other factors remaining unchanged.

Contraction of supply
It refers to the fall in supply of a commodity when its prices fall, other factors remaining unchanged.
Shift in Supply Curve
When factors other than price affect the supply it results in the shift of supply curve. The supply curve may
move inward or outward.
A shift of supply curve outwards to the right will mean an increase in supply at the same price level.
When the supply curve moves inwards to the left it means that less is being supplied at the same price
level.
Factors affecting Supply
Price of the commodity: A rise in price will result in more of the commodity being supplied to the market
and vice versa.

Prices of other commodities: For example if it is more profitable to produce LCD TVs then producers will
produce more LCD TVs as compared to PLASMA TVs. Thus the supply curve for PLASMA TVs will shift
inwards i.e. a fall in supply.

Change in cost of production: Increase in the cost of any factor of production may result in the decrease
in supply as reduced profits might see producers less willing to produce that commodity.

Technological advancement: Improvement in technology results in lowering of cost of production and


more profits for the producer and thus more supply of that commodity.

Climate: Climate and weather conditions affect the supply of commodities especially agricultural goods.

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