Supply is the quantity of a good or service that a producer is able and willing to supply at a given price during a given period of time.
Movements along and Shifts of the Supply curve
Factors that cause a shift in the supply curve:
- Productivity – increases in productivity leads to higher quantities of products being produced, causing a shift outward from S to S1.
- Technology – technological advancements can lead to more efficient production of production and so the supply of the product increases and causes the shift outward displayed in the graph above.
- Subsidies – subsidies lower firms' costs of production because they enable firms to purchase more efficient production methods or buy in bulk enabling them to achieve economies of scale - or just partly pay for their costs.
- Costs of production – Production costs increasing e.g. due to increased prices of raw materials causes a decrease in supply as producing the same product has more costs and is less profitable.
- Weather – If the weather is hot and sunny then certain goods e.g. ice cream or watermelon are sold in higher quantities and so seasons affect supply for products.
- Indirect taxes – If there are a high number of indirect taxes on a good and it doesn’t have inelastic demand, the firms producing the goods may stop as the venture isn’t as profitable and therefore supply decreases.
- Exchange rate – If there is a strong pound then imports are cheaper whereas exports are more expensive and therefore exchange rates have a huge impact on supply. If there is a weak pound then imported raw materials become more expensive and the supply curve shifts inwards.