Supply (Week Three)

Definition

Supply = willingness to sell + ability to sell 

Law of supply

If price increase, so the quantity increase

If price decrease, so the quantity decrease

Supply curve

This is an example how supply curve looks alike.

Individual supply and Market supply

Market supply is the combination of individual supply

Individual 1 + Individual 2 = MARKET SUPPLY

FOR EXAMPLE 

Determinant of supply

Price of related goods

The supply of a product can be influenced by the price of related goods:

• Substitute goods

Supply of a product will decrease if there is an increase in the price of a substitute product, for example Maxis and Celcom. So, if the price of substitute increase, supply curve for current goods will shift to the left.

P maxis increase, Qs maxis increase to SScelcom decrease

• Complementary goods

An increase in the price of a product will increase the supply of a complementary product. For example, Petrol and Car. So, if the price of complementary goods increase, supply curve will shift to the right.

P car increase, Qs car increase to SSpetrol increase

• Cost of production

When the cost of production increase (price of production factor increase), quantity supplied will be decrease and vise versa. So, cost of production increase, will shift the supply curve to the left.

P production factor increase, Qs production factor decrease to SSvice versa decrease

• Expected future price

If the seller was expecting the price will increase in following month, the current quantities supplied will be decrease and vice versa. 

Pe increase, Qs now decrease to SS shift to left 

• Technological advance

Changes in technology are the most important influences on supply. Existence of the new technology will reduce cost of production. So, the seller can increase their production.

• Number of sellers

The large number of firms supplying a product, the large quantity supplied of the product and vice versa. 

Change in Quantity Supply (movement)	Change in Supplied (shift)
Situation Movement along the supply curve (move point to point) Factor Occurs when price of a product changes (ow price of the product) Others factor remain constant Evidence Upward movement Increase in quantity supply Price of product rises, the quantity supplied increases. Downward movement Decrease in quantity supply Price of the production falls, the quantity supplied decreases.	Situation Shift in the supply curve (new curve) Factor Occurs when there are changes in other factors such as technology, government policy, price of related goods, etc. Price of the product remains constant Evidence Increase or decrease in supply curve Supply curve shift to right (increase) if : S1 → S2 Price of substitutes goods decrease Price of complement goods increase Price of input decreases Expected future price decreases Increases the number of sellers Supply curve shift to left (decrease) if : Price of substitutes goods increases Price of complement goods decreases Price of input increases Expected future price increase Decreases in number of sellers