Supply

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

• The diagram shown displays a shift of the supply curve. A change in price does not cause a shift, it causes a movement along the curve; a movement up the curve is known as an extension whereas a movement down the curve is a contraction.

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.