This document discusses the key concepts of supply including the meaning of supply, the law of supply, and supply curves. It explains that the law of supply states that as price rises, quantity supplied increases, as shown by upward sloping supply curves. Supply curves can shift due to changes in production costs, taxes, technology, number of producers, and prices of substitutes. Joint supply occurs when increased output of one good increases supply of another good. Examples given are beef and beef hides, which are jointly supplied.

1. Determinants of Supply
AS Economics

2. Key Issues
• The meaning of supply
• The law of supply
• The supply curve
• Incentives to produce – explaining the supply
curve
• The conditions of supply – shifts in the supply
curve
• Joint supply

3. The Law of Supply
• Supply is the quantity of a good or service that a
producer is willing and able to supply onto the
market at a given price in a given time period
• The basic law of supply is that as the market price
of a commodity rises, so producers expand their
supply onto the market
• A supply curve shows a relationship between
price and quantity a firm is willing and able to sell

4. The Supply Curve
Price
Quantity
Supply
P1
Q1
P2
Q2Q3
P3

5. Explaining the supply decision
• The “quantity supplied” is the amount sellers are willing
and able to offer for sale at a single price
• The change in the price of the good itself does not shift
supply--it causes a movement ALONG the supply curve
• Supply curves normally slope upward. Why?
– Rising prices act as an incentive for producers to expand output
– the potential for higher profits is the incentive!
– Increased output may lead to higher costs of production
• But not all economists accept this convention
– Increased output might lead to lower costs per unit (this is
known as economies of scale)

6. An outward shift in the Supply Curve
Price
Quantity
S1
P1
Q1 Q2
S2

7. An inward shift in the Supply Curve
Price
Quantity
S1
P1
Q1 Q2
S2
S3
Q3

8. Causes of shifts in market supply
• Changes in production costs
– Wage costs
– Raw materials and components
– Energy costs
• Government taxes and subsidies
• Climatic conditions (important for agricultural supply)
• Changes in production technologies
• Changes in the number of producers in the market
• Changes in the objectives of suppliers in the market
• Changes in the prices of substitutes in production

9. The supply of milk

10. The milk supply chain

11. Factors affecting the market supply of milk
• The price of raw milk from farmers
• Productivity in milk industry
• The number of suppliers in the industry
• Costs of packaging and transportation
• Government subsidies to milk producers

12. Joint Supply
• Two products are in joint supply when a rise in the
output of one product leads to a rise in the supply
of the other product

13. Diagram to show joint supply
Price Price
Quantity bought and sold Quantity bought and sold
D
S Beef
P1
Q1
D
S Beef hide
D1
P2
P3
Qa
S1
Qc
P4
QbQ2
Two products are in joint supply when a rise in the output of one product leads
to a rise in the supply of the other product

14. Can ewe think of examples of joint supply?

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