Factors Affecting Supply
Let’s imagine we are all producers And think like producers We love profits like bees love honey Revenue minus cost gives us profit So anything that increases profit Will make us produce, produce and produce Money, Money, Money! First, prices When price increases, revenue increases Hence, profits increase That’s a signal to produce more In other words, increase quantity supplied Input prices Suppose we bake and sell cakes Eggs, flour and labor all cost money When price of inputs like eggs increases Baking cakes become less profitable So we’ll supply fewer cakes Technology We used to bake with these That’s slow… Due to improvements in technology We now bake with these Our productivity increases So better technology helps us save cost Which increases our profits We’ll gladly supply more cakes.
Competitive Supply As bakers, we can bake cakes…or bread If price of bread increases This means baking bread is more profitable Then…
we should bake more bread!
Crap, supply of cakes has to decrease Why? Because we use the same resources to bake bread and cakes When we bake more bread We have fewer resources left to bake cakes In this case, we say that cakes and bread are in competitive supply When supply of bread increases supply of cakes has to decrease There’s another type of supply called joint supply For example, beef and leather To produce more beef we have to slaughter more cows This allows us to produce more leather too So we say that beef and leather are in joint supply When supply of beef increases supply of leather increases as well Expectation of future prices Suppose you own some gold If you think the price of gold is going to fall in the future Oh… Sell the gold as soon as possible before its price falls further! So supply of gold today will rise If you think price is going to rise in the future Then keep the gold today so that you can sell it at a higher profit in the future So supply of gold today will fall Weather Remember the tsunami that hit Japan in 2011?
That destroyed many factories So supply of many stuff like cars and electronics decreased in the short term And of course, with good weather Supply increases Number of producers In 2010, if you wanted a tablet You had to get an Ipad As more manufacturers entered the tablet market You have many choices today When number of producers increases Supply increases and vice versa So this is the summary But hey there are so many factors affecting supply How do I graph the supply curve? If you like this article, remember to like and subscribe Next up: Supply curve