Glossary
Decrease in Supply (Shift Left)
A decrease in supply occurs when the entire supply curve shifts to the left, indicating that firms are willing and able to produce less at every given price.
Example:
A severe drought that destroys a significant portion of the wheat crop would cause a Decrease in Supply (Shift Left) for bread.
Determinants of Supply
Determinants of supply are factors that cause the entire supply curve to shift, indicating a change in the willingness or ability of firms to produce at all price levels.
Example:
New government regulations on emissions could act as a Determinant of Supply, shifting the supply curve for certain industries.
Expectations of the supplier (as a determinant)
Suppliers' beliefs about future prices can influence their current production decisions.
Example:
If a smartphone manufacturer has expectations of the supplier that future prices for their new model will fall, they might increase current production to sell more now.
Increase in Supply (Shift Right)
An increase in supply occurs when the entire supply curve shifts to the right, indicating that firms are willing and able to produce more at every given price.
Example:
A breakthrough in battery technology that lowers production costs for electric cars would cause an Increase in Supply (Shift Right) for EVs.
Law of Supply
The law of supply states that there is a direct (positive) relationship between price and quantity supplied.
Example:
When the price of a popular video game console increased, the company applied the Law of Supply by producing more units to capitalize on the higher profit margins.
Number of competitors (as a determinant)
An increase in the number of firms in a market generally leads to an increase in overall market supply.
Example:
When several new fast-food chains open in a town, the total number of competitors in the local fast-food market increases, leading to a greater supply of meals.
Other goods prices (as a determinant)
If a firm can produce multiple goods, a change in the price of one of those goods can affect the supply of another.
Example:
If the price of corn increases significantly, a farmer might shift land from soybean production to corn, decreasing the supply of soybeans due to other goods prices.
Quantity Supplied
Quantity supplied is a specific amount of a good or service that is produced at a particular price.
Example:
At a price of $3 per cup, a coffee shop's quantity supplied might be 200 cups per day.
Resources (as a determinant)
Changes in the cost or availability of resources (inputs) used in production can shift the supply curve.
Example:
An unexpected increase in the price of cocoa beans, a key resource, would likely decrease the supply of chocolate bars.
Supply
Supply refers to the various quantities of a good or service that firms are willing and able to produce at different price levels.
Example:
If the price of electric vehicles rises, car manufacturers might increase their supply of EVs, offering more units to the market.
Taxes (as a determinant)
Government taxes or subsidies can impact the cost of production, thereby shifting the supply curve.
Example:
A new excise tax on sugary drinks would increase production costs for soda companies, leading to a decrease in supply.
Technology (as a determinant)
Improvements in technology can make production more efficient, leading to an increase in supply.
Example:
The development of automated assembly lines, a form of advanced technology, significantly increased the supply of automobiles.