The Allocation of Resources - Supply

This section focuses on understanding how changes in factors other than price affect the quantity of goods and services that producers are willing and able to offer for sale. We will explore the concept of the supply curve and how movements along it illustrate changes in quantity supplied.

The Supply Curve

The supply curve shows the relationship between the price of a good or service and the quantity supplied. Generally, there is a positive relationship: as the price increases, producers are willing to supply more, and as the price decreases, producers are willing to supply less.

The shape of the supply curve is typically upward-sloping, reflecting the law of supply.

Factors Affecting Supply (Movements Along the Supply Curve)

Changes in the price of the good itself cause movements along the existing supply curve. These changes are due to shifts in other factors that influence production costs.

• Changes in Input Prices: The cost of resources used in production (e.g., wages, raw materials, energy) significantly impacts supply.
• Changes in Technology: Improvements in technology often lead to lower production costs and increased efficiency, shifting the supply curve to the right.
• Changes in the Number of Sellers: More sellers in the market generally lead to a higher overall supply.
• Changes in Expectations: If producers expect future price increases, they may increase current supply. Conversely, expected price decreases might lead to a reduction in current supply.
• Government Policies: Taxes and subsidies can affect the cost of production and thus influence supply. Taxes increase costs, reducing supply; subsidies decrease costs, increasing supply.

Illustrating Movements Along the Supply Curve

The following table illustrates how changes in the price of a good lead to changes in the quantity supplied.

Price	Quantity Supplied
£5	10 units
£7	15 units
£9	20 units

Figure: Suggested diagram: A standard upward-sloping supply curve with arrows indicating movements along the curve due to a change in price. Label the axes as 'Price' (vertical) and 'Quantity Supplied' (horizontal).

Example: Impact of a Change in Input Prices

Consider the market for apples. If the cost of fertilizer (an input) increases, the cost of growing apples will rise. This will make it less profitable for apple farmers to produce apples at each price level. As a result, they will be willing to supply a smaller quantity of apples at every price. This is represented by a movement left along the supply curve.

Example: Impact of Technological Advancement

Suppose a new, more efficient apple-picking machine is invented. This technology reduces the time and labor required to harvest apples, lowering production costs. Apple farmers will now be willing to supply more apples at each price level. This is represented by a movement right along the supply curve.

Conclusion

Understanding the supply curve and the factors that cause movements along it is crucial for analyzing market dynamics. Changes in these factors directly impact the quantity of goods and services available in the market and can lead to shifts in the equilibrium price and quantity.