Notes

Principles of Economics
Chapter 3 : Supply

Definition.
- Supply is defined as the ability and willingness to sell or produce a particular product and services in a given period of time at a particular price.

Law of Supply.
- The law of supply states that the higher the price of a good, the higher is the quantity supplied for that good.
- The lower the price of a good, the lower is the quantity supplied (Positive relationship).

Supply Schedule.
- A list of amounts of a product that a seller would offer for sale at different prices in a defined time period when all nonprice factors are held constant.

Individual Supply.
- A relationship between the quantity of a product supplied by a single seller and its price.

Market Supply.
- The relationship between the total quantity of a product supplied by adding all the quantities supplied by all sellers in the market and its price.

Determinants of Supply.

1) Price of Related Goods.
a. Substitute goods
- When the price of good increase, the price of substitute goods will decrease.
- Therefore, the company will reduce the supply of the substitute goods and increase the supply of a good.
- E.g., Pepsi and Coca Cola. If the price of Pepsi increase, the quantity supplied will increase and the quantity of Coca Cola will decrease.

b. Complementary goods
- When the price of car increase, the production of car will increase. So, the supply of car will also increase. Since car and fuel are complementary, the supply of fuel will increase.

2) Level of Technology.
- Supply will increase when the technology increase.

3) Speculation.
- If the price will increase, producer will decrease the current supply.

4) Number of Sellers.
- If the number of firms supplying a product increase, the quantity supplied for the product will increase.
- E.g., If the number of cafeterias in university increase, the foods and drinks will also increase.

5) Production Cost.
- Increase in the production cost will decrease the number of supplies.

6) Government Policies.
a. Tax
- Taxes will decrease the supply of goods and services.
- Taxes discourage producer from producing extra which increase the production cost.

b. Subsidies
- Subsidies will increase the supply.
- Subsidies encourage producer to produce more.

Changes in Quantity Supplied.
- Movement along the supply curve
- Price changes while the other factors remain constant
- Upward movement = increase in quantity supplied
- Downward movement = decrease in quantity supplied

Changes in Supply.
- Shift in the supply curve.
- Occurs when there are changes in the other factors, but the price remains constant.
- Increase = bounds downward (to the right)
- decrease = bounds upward (to the left)