SupplyAS Economics

What is supply?

• Supply is the quantity of a product that producers are willing and able to provide at different market prices over a period of time

• It is what they provide from scarce resources available

• Through supply, producers are aiming to meet the unlimited wants of consumers

Tangible and intangible goods

• Tangible goods are ones which you can see and touch e.g. mobile, food, clothing

• Intangible goods (usually services) are things that you cannot see or touch e.g. banking, hairdressing, transport

Why do suppliers supply?

• Suppliers aim to meet the needs of consumers• Usually suppliers are doing this to make a

profit• Profit is the difference between revenue and

total cost• Many firms have profit maximisation as one

of their objectives

Calculating profit

• Cost per mobile: £5• Selling price: £10• Number produced and sold: 100

Costs = 100 x £5 = £500Revenue = 100 x £10 = £1,000Revenue – Cost = £1,000 - £500 = £500

Calculating profit

• Cost of book: £2• Selling price: £3• Number made and sold: 200

•Costs = 200 x £2 = £400•Revenue = 200 x £3 = £600•Revenue – Cost = £600 - £400 = £200

Supply and factors of production

• A supplier’s function is to combine the factors of production in an efficient and profitable way

• Factors of production in a mobile phone• Land – location, materials• Labour – right skilled people• Capital – assembly of phones, money to start

off• Enterprise – business skills and design

Nokia and its use of FOP

• Nokia is a Finnish based mobile phone firm• Labour costs in Finland are high, compared to developing

economies like China and India• Nokia uses capital intensive production in Finland e.g. with

state of the art machines replacing labour• Labour intensive methods are used in lower wage countries

e.g. China

Relationship between price and quantity supplied

• Suppliers will supply more the higher the price • This is because suppliers will make more of a

profit• Consequently, if price falls then the quantity

supplied falls

Supply Curve

Price £

Quantity Bought and Sold (000s)

Supply

£3

200

£7

800

The supply curve slopes upwards from left to right indicating a positive relationship between supply and price. As price rises, it encourages producers to offer more for sale whereas a fall in price would lead to the quantity supplied to fall.

Supply Schedule

Price per person Quantity Supplied

500 1,200

450 1,150

400 1,100

350 1,050

300 1,000

250 950

200 900

150 850

The Supply Curve• Changes in any of the factors OTHER than price cause a shift in the supply

curve• A shift in supply to the left – the amount producers offer for sale at every

price will be less

• A shift in supply to the right – the amount producers wish to sell at every price increases

• HINT: Be careful to not confuse supply going ‘up’ and ‘down’ with the direction of the shift!

The Supply Curve

Price £

Quantity Bought and Sold (000s)

Supply

£4

400

S1

100

S2

900

Changes in any of the factors affecting supply other than price will cause the entire supply curve to shift. A shift to the left results in a lower supply at each price; a shift to the right indicates a greater supply at each price.

Activity

Price Quantity Supplied

4.00 320

3.75 280

3.50 240

3.25 220

3.00 180

2.75 140

2.50 100

Factors which affect supply

• Costs of production• Size and nature of the industry (e.g.

competition)• Lack of raw materials (oil, ore, coal, gas,

diamonds, land• Government policy e.g. VAT/Tax