Supply is the willingness and ability of producers to create goods and services to take them to market. Supply is positively related to price given that at higher prices there is an incentive to supply more as higher prices may generate increased revenue and profits.

Supply Curve

As price rises, the quantity supplied by producers extends because production becomes more profitable. As price falls, the quantity supplied by producers contracts because production becomes less profitable.

Movements along a Supply Curve

Movement along the supply curve

A contraction in supply means a fall in the quantity supplied for a product following a fall in its price.

An extension of supply means an increase in the quantity supplied for a product following an increase in price.

Shift in Supply Curve

A rise in supply

The market supply curve shifts outwards. Possible causes are:

  • other products become less profitable to produce;
  • a fall in the cost of factors of production;
  • an increase in the supply of resources;
  • technical progress and improvements in production processes and machinery;
  • an increase in business optimism and expectations of profit;
  • the government subsidizes production and/or cuts taxes on profits.
A fall in supply

The market supply curve shifts inwards. Possible causes are:

  • other products become more profitable to produce;
  • a rise in the cost of factors of production;
  • a fall in the supply of resources;
  • technical failures, such as a cut in power supplies or mechanical breakdowns;
  • a fall in business optimism and profit expectations;
  • the government withdraws subsidies and/or increases taxes on profits.

Plenary

  1. Define the term ‘supply’
  2. Draw & Label a Supply curve
  3. Mention 4 factors that influences supply.
  4. With the aid of a diagram, illustrate the effect on the supply of beef, if there is a widespread of cattle disease.
  5. With the aid of a diagram, illustrate the effect on supply of lawyers if there is an increased fees in law school.
  6. With the aid of a diagram, illustrate the effect on supply, if there is favorable weather condition for growing maize.

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