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Wize University Microeconomics Textbook > Demand and Supply

Supply

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Supply

  • Supply - the entire curve that shows how much firms are willing to produce at every price
  • Quantity Supplied - a specific point on the supply curve.


Law of Supply - states that as price rises, the quantity supplied will
increase

Example
In the diagram above, as the price increases from $40 to $50, the quantity supplied increases from 80 to 90 units but supply does not change (no shift).
Wize Tip
A change in price only causes a change in Quantity Supplied (movement along the curve), but NOT SUPPLY (no shift)


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Factors That Shift Supply

  • Input Costs (Cost of Resources) If input costs (like wages or cost of raw materials) decrease, the supply will shift
    right

Wize Tip
When supply increases, the curve shifts right or downward which makes it look like it's decreasing. But a shift right always means increase (for both supply and demand).

  • Technology Level If technology improves, the supply will shift
    right
  • Expectation If prices are expected to rise in the future, today the supply will shift
    left
  • Number of Firms More firms entering the industry will cause supply to shift
    right
  • Price of Related Products Complements in production: If price of product X increases, supply of product Y shifts
    right
    Example: Cars and gas - Substitutes in production: If price of product X increases, supply of product Y shifts
    left
    Example: Pepsi and coke -

Practice: Supply

Which of the following would shift supply of books upward?