G7 - Supply

Supply

The willingness and ability of
firms to make a product
available to consumers

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

A supply curve slopes upwards

Market supply

The sum of all individual producers’ decisions about the supply of a particular product

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

•other factors, e.g. good weather boosts crop
harvests

Market supply

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

•other factors, e.g. wars and natural disasters

The sum of all individual producers’ decisions about the supply of a particular product