Supply

Question 1

What is the law of supply?

Answer 1

The higher the price, the higher the supply
The lower the price, the lower the supply

P.S = a positive relationship

Question 2

What are the determinate of Supply?
Explain Them

Answer 2

1. Cost of Productiono.
   If the price of raw materials and other production costs falls, then the supply curve will shift to the right. Conversely, a rise in production cost will reduce supply at each price.
2. Taxes
   Taxes imposed on the supplier of a product add to the cost of production. Therefore, the imposition of tax on a product reduces its supply, shifting the curve to the left. Conversely, a decrease in tax will increase supply, shifting the curve to the right.
3. Subsidies
   A subsidy is a type of financial assistance from the Government to help encourage output by reducing the cost of production. Subsidies are usually given to reduce the cost of supplying goods and services beneficial to all of society, such as education, training, and healthcare. If the firm gets a subsidy from the Government, the production cost decreases; therefore, the curve will move to the right.
4. Technological progress/ Innovations
   Technological advances such as automation and wireless internet technologies mean that there can be greater output levels for a firm, leading to reduced production costs. As a result, innovation will shift the supply curve to the right.
5. Opportunity cost
   Price acts as a sighal to producers which products are in demand and provide higher profits. For example: If other products (corn) have better prices than, for example, apples, the producer is likely to reduce or switch from producing/supplying one product (apples) to another (corn).
6. Time
   The shorter the period in question, the less time the suppliers have to increase their output. Therefore the lower the supply tends to be. Thus, for example, a farmer can’t increase the supply of crops over a short time, even if the agricultural product price increases. However, the output can be increased over time.
7. Weather
   The supply of certain goods will also depend on the weather conditions. For example, a drought will cut the supply of agricultural products and shift the supply curve to the right.
   Conversely, favourable weather conditions will shift the supply of agricultural output to the right.