SUPPLY

 

1-      The theory of supply: the higher the demand, the greater the quantity supplied, other things being equal

 

2-      Firms supply more at higher prices because:

                                                               i.      incentive of greater profit

                                                             ii.      more firms will be attracted into the industry

                                                            iii.      as output increases, cost tennds to rise; therefore, firms require higher prices if they are going to produce more.

3-      A change in prices causes a movement along the supply curve

                E.g. from point (A) to point (B)

4-      Non price determinants:

                                                               i.      Price of inputs (a rise---->a fall)

                                                             ii.      Technology (a rise---->a rise)

                                                            iii.      Taxes (a rise---->a fall) and subsidies (a rise---->a rise)

                                                           iv.      Price expectations(a rise---->a fall)

                                                             v.      Profit of goods in competitve supply (a rise---->a fall)

                                                           vi.      Profit of goods in joint supply (a rise---->a rise)

                                                          vii.      Natural and unpredictable events

5-      A change in one of the determinants will shift the supply curve

                            E.g. From S to S1 a fall in supply

                            From S to S2 a rise in supply