Supply: Relationship between Price and Quantity Supplied

Supply curves have an upward-sloping nature due to the following reasons:

• When the price of a good increases, it becomes more financially rewarding for firms to produce and supply that good, leading to an increase in supply.
• High prices often attract new firms to enter the market, as it appears to be a profitable opportunity. This influx of new suppliers contributes to an overall increase in supply.
• As firms produce larger quantities of a good, their production costs tend to rise. To cover these increased costs, they must charge a higher price for the product, further reinforcing the upward slope of the supply curve.
• Individual Supply: This refers to the quantity of a good that an individual producer is both willing and able to sell at a specified price within a particular time frame.
• Market Supply: Market supply represents the collective sum of all individual supplies within a given market. It provides a comprehensive view of the total quantity of a good that all producers in the market are willing to supply at various price levels.

Types of Supply:

• Joint Supply: This concept applies when increasing the supply of one good results in a simultaneous increase or decrease in the supply of another related good. For example, when more lamb is produced, it leads to an increase in the supply of wool.
• Composite Supply: Composite supply occurs when a particular good or service can be obtained from various sources or methods. For instance, light can be generated through multiple means such as candles, electricity, or gas.
• Competitive Supply: Competitive supply arises when the raw materials used to produce a good in composite supply are perfect substitutes for one another. In this scenario, the various sources of supply compete with each other to fulfill a specific need or want. For example, if electricity and candles were considered perfect substitutes and had similar production costs, they would compete to provide the same product, which is light.

Factors That Shift the Supply Curve:

• Productivity (P): An increase in productivity leads to an outward shift in supply because it reduces average costs for firms.
• Indirect Taxes (I): The imposition of indirect taxes results in an inward shift in supply.
• Number of Firms (N): A greater number of firms in the market leads to an increase in supply.
• Technology (T): Advancements in technology cause an outward shift in supply as they improve production efficiency.
• Subsidies (S): Subsidies provided to producers result in an outward shift in supply.
• Weather (W): Particularly relevant for agricultural produce, favorable weather conditions can increase supply.
• Costs of Production (C): When the costs of production fall, firms can afford to supply more, whereas rising costs, such as higher wages, lead to an inward shift in supply.