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Supply
From ZuluNotes - Free Leaving Cert Notes
| Supply | ||
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| Subject: | Economics | |
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| Level | H&O | |
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Supply is determined by the equation:
Supply=f{P,Pag,IC,T,U,Tx},
What this means is that the level of goods supplied depends upon various elements. In Economics we say that Supply is a function of the variables.
Contents |
Factors
The factors that make up the supply equation (P,Pag,IC,T,U,Tx) are....
Price (P)
The selling price of the product itself. If the price of the product rises, the company will supply more. This causes a movement upward along the supply curve. If the price falls, then there is less incentive for the company, so they will supply less.
Price of an Alternative (Pag)
The selling price of an alternative good that the firm can/does produce. If the PAG increases the company will try to produce more of that good, and if they only have limited production capacity, they will therefore supply less of the original good, causing an Inward Shift in the supply curve.
Input Costs
If labour or materials become more expensive and costs rise, profits earned will fall. If the good is less profitable the firm will be less inclined to sell it, or may not make enough money to sell as much, and so the supply curve will shift inwards.
Technology
Technology usually causes an outward shift in supply by means of a breakthrough that can increase supply, or by lowering production costs.
Unplanned Factors (U)
Unplanned factors can have adverse effects on supply. For example, bad weather could effect crops, causing an inward shift in their supply curve.
Government Taxes
An increase in taxes causes an inward shift in the supply curve and therefore a reduction in supply. For example, new carbon taxes are aimed to make it less profitable for companies to produce goods that result in high CO2 emissions, and so they are supplying less of these and more environmentally friendly products.
