SUPPLY

Supply is the amount of a product that suppliers will offer to the market at a given price.

The Supply curve slopes up from left to right. This is because at higher prices, a greater quantity is
supplied to the market. A change in price will cause a movement either up or down the supply curve.

FACTORS LEADING TO A CHANGE IN SUPPLY

Changes in the costs of production: If production costs (i.e. wages, raw materials, rent) rise,
sellers are likely to reduce supply. This is because their profits will be reduced. A rise in Costs
would result the supply curve to shift towards the Left. Availability of resources will also affect
the supply curve. If there are shortages in the factors of production, production will slow down.
Introduction of new technology: new technology is more efficient and will help to lower
production costs, encouraging firms to offer more for sale. As a result, the supply curve would
shift towards the right.
Indirect Taxes: Indirect taxes are taxes imposed by the government on spending. When they are
imposed or increased, the supply curve will shift to the left as they represent a cost to firms.
Government Subsidies: Subsidies are given to firms to encourage the production of a certain
product. This would help reduce the production costs, as a result increase the supply of the
product. Hence the supply curve would shift towards the right.
External Shocks: factors beyond the control of a business can have an impact on supply.
- World Events: Global events such as political instability and financial crisis can also
lead to the reduction of supply due to production becoming harder during this time.
- Weather: Bad weather, such as snow storms, can disrupt the supply of many goods.
Similarly, agricultural products will be hard to produce.
- Government: Government economic policies (i.e. increase in interest rates) would
result in the reduction of supply due to business costs rising.
- Price of related goods: Supply can be affected by price changes in related goods.

Hafsa Razikeen