Supply

Question 1

What is supply?

Answer 1

Supply is the quantity of a good or service that producers are willing anf able to sell at various prices, over a period of time, ceteris paribus.

Question 2

What is the law of supply?

Answer 2

Law of supply states that the price has a directly proportional relationship to the quantity supplied, ceteris paribus.

Question 3

What are the non-price determinants of supply?

Answer 3

“WETPIGS”
- Weather
- Expectation of future prices
- Technological change
- Price of related goods
- Input costs
- Government policies
- Seller’s numbers

Question 4

What is weather?

Answer 4

Good weather conditions, better harvest, supply of good increases.

Question 5

What are expectations of future price levels?

Answer 5

If a good’s price is expected to increase, producers will hold their supply to sell later, thus supply decreases.

Question 6

What is technological changes?

Answer 6

Technology and research helps to use less factors to produce the same amount of goods, hence cost of production decreases, hence supply increases.

Question 7

What are the prices of related goods?

Answer 7

Joint supply:
- price increases, supply increases

Competitive supply:
- Price increases, supply decreases

Question 8

What are input costs?

Answer 8

E.g.: Wages of workers increase, hence profits of producers decrease, hence supply decreases.

Question 9

What are government policies?

Answer 9

Tax increases, profits of producers decrease, hence supply decrease.

Subsidies increase, profits of producers increase, hence supply increase.

Question 10

What are seller’s numbers?

Answer 10

The more amount of sellers selling the same product, the more the supply.