Supply
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Lektionsnotizen
What supply is
- Supply is a schedule of quantities producers are willing and able to offer at alternative prices over a specified period. Quantity supplied names one amount at one price; actual sales also depend on buyers. Supply can include suitable stocks available for sale as well as current production.
- Specify product, price basis, units and period. The standard curve holds input costs, technology, relevant policy and other supply determinants constant. A sales increase alone does not prove a supply shift.
Read a supply statement precisely
The law of supply
- In the standard model, a higher own price increases quantity supplied when other supply determinants are unchanged. Additional output may become worthwhile as the price covers extra costs, subject to capacity. A price rise is not a guarantee that every extra unit is profitable.
- Fictional individual supply P = 2 + 0.1Q gives Q20 at P4 and Q40 at P6. This is extension along the existing curve; a lower own price gives contraction. The upward slope is a model, not a universal claim about every fixed-capacity situation.
Movement along fictional supply
Movement along vs shift
- An own-price change alone moves along supply. Changed relevant costs, technology, policies or resource conditions can shift it. A rightward shift means more offered at each given price; a leftward shift means less.
- Fictional S1 P = 2 + 0.1Q becomes S2 P = 0.1Q after a stated unit-cost reduction. At unchanged P6, quantity rises Q40 to Q60. Without demand information this alone does not determine actual sales or the new equilibrium price.
A fictional cost-driven supply shift
Factors shifting supply
- Input-cost changes affect supply through relevant unit costs; a wage rise need not increase unit labour cost if productivity also improves. Effective cost-reducing technology can increase supply, while new equipment costs and implementation can offset benefits. Weather can alter yields or available stock. Entry can increase market supply if existing conditions are unchanged.
- In a simple per-unit producer model, tax £2 shifts baseline P = 2 + 0.1Q to P = 4 + 0.1Q; subsidy £2 shifts it to P = 0.1Q. At Q40 consumer prices are £6, £8 and £4 respectively for equal producer receipts of £6 after the policy adjustment. These are schedules, not equilibrium outcomes; a fixed grant, VAT or buyer subsidy is not automatically the same parallel wedge.
Alternative £2 per-unit policies
Joint and competitive supply
- Joint supply links outputs from a production process or enterprise: beef and hides, sheep meat and wool, cream and skimmed milk after separation, or boards and sawdust from logs. Crude oil becoming petrol is an input-output relationship, not by itself an example of two joint outputs.
- Competitive supply means scarce resources can produce alternatives, such as wheat or barley on one field. A higher wheat price may encourage switching land away from barley and reduce barley supply at each barley price. Do not confuse the production relationship with substitutes in consumer demand.
Joint outputs or alternative uses?
Short run and long run
- Supply responsiveness can be limited immediately by growing times, installed capacity and specialised inputs. Saleable inventories, flexible inputs and spare capacity can permit quicker adjustment. Perishable or unsuitable stock may not help.
- Longer time can allow investment, entry or training, but scarce resources and regulatory or technical limits can remain. For storable goods, expectations of higher future prices may encourage holding stocks back now; effects depend on storage costs and feasible production changes. Distinguish current supply from future plans.
What permits a faster response?
Producer decisions
- Producers consider receipts, relevant costs, risks and constraints. For profit, subtract total costs from sales revenue over the same period and basis. Revenue at one price is price times units sold; supply quantity is not necessarily sales quantity or profit.
- A higher price may support additional output if marginal receipts cover extra costs, but capacity, objectives and market conditions matter. Producers may be private, public or non-profit organisations and need not maximise short-term profit alone.
Connect incentives with constraints
Individual and market supply schedules
- A market schedule adds every firm’s offered quantity at the same price and period. In the separate fictional two-supplier market, P4 gives A20 plus B10 = 30 weekly items; P6 gives A40 plus B20 = 60; P8 gives A60 plus B30 = 90.
- This is horizontal addition of quantities. Keep the price basis and units consistent, and do not add prices or combine offers measured at different prices. Entry or exit changes the market relationship, whereas an own-price change alone moves along a schedule with suppliers and other determinants fixed.
Separate fictional two-firm market
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1.What is supply?
Easy- Aquantities producers are willing and able to offer at alternative prices in a stated period
- Bthe quantity consumers buy
- Cthe price
- Dprofit
2.In the standard upward-sloping model, with other supply determinants unchanged, what happens as this good’s own price rises?
Easy- Aas price rises, supply falls
- Bprice does not matter
- Cas price falls, supply rises
- Das price rises, quantity supplied rises
3.What causes movement along this good’s supply curve, other supply determinants unchanged?
Easy- Aa change in tax
- Ba change in costs
- Ca change in the price of the good
- Da change in technology
4.What causes a shift of the supply curve?
Easy- Aa mere change of the diagram’s title
- Ba change in relevant unit production costs
- Cthis good’s own-price change alone
- Dno determinant changes
5.What is a subsidy?
Easy- Aa payment by government to producers
- Ba tax
- Ca fine
- Da loan
6.What is an indirect tax?
Easy- Aincome tax
- Ba subsidy
- Ca wage
- Da tax on spending such as VAT
7.In the simple producer-supply model, what does a new per-unit output tax do, other determinants unchanged?
Easy- Ait has none
- Bit removes supply
- Cit shifts supply left
- Dit shifts supply right
8.In the simple producer-supply model, what does a per-unit output subsidy do, other determinants unchanged?
Easy- Ait removes supply
- Bit shifts supply right
- Cit shifts supply left
- Dit has none
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