The Determinants of the supply of goods and services

The Determinants of the supply of goods and services

1. SUPPLY= the amount offered for sale at each given price level

2. PLANNED SUPPLY= the amount producers plan to produce at each given price

3. ACTUAL SUPPLY= the amount that producers in fact produce. This may differ from planned supply for a variety of reasons such as breakdowns in production, staff absences etc.

4. Shifts in Supply

   • Causes
     • Rightward Shift
     • Leftward Shift
     • wage costs
       • decrease
       • increase
       • expenditure tax (indirect) by government
         • removed
         • imposed
         • production subsidies (e.g. on farming) by government
           • removed
           • imposed
           • technical progress (reducing costs)
             • occurs
             • doesn't occur
             • firms...
               • enter a market
               • leave a market
               • other costs
                 • decrease
                 • increase

5. Movements along the supply curve

   • Extension in supply
     • when the amount offered for sale is increased because the price level has risen
   • Contraction in supply
     • when the amount offered for sale is reduced because the price level has fallen

6. The Supply Curve shows the relationship between amount offered for sale and the price

   • We assume that firms want to maximise profits so when the price is high they will want to supply more
     • So price and supply are proportional (as price increases, quantity supplied increases)

7. MARKET SUPPLY= the sum of all individual firms' supply curves at each given price

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