Notes on Supply, Unit 1 Economics

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Economics Chapter 4 Notes ­ Supply
Charlotte Coleman LVIE
Supply by a single firm and market supply
When economists refer to `supply' they generally mean market supply. Market Supply is the
quantity of a good or service that all the firms or producers in the market plan to sell at different
prices. Market supply is the sum of the supply of all the firms or producers in the market.
The `law' of supply
The `law' of supply states that as a good's price rises, more is supplied; there is a positive
Market Supply Curve
The Market Supply curve illustrates the `law' of supply. The main reason for upward-sloping
stems from the profit-maximising objective. For a firm, profit is the difference between the total
sales revenue and total costs of production. We can see that as price increases, so does the
quantity produced.
Shifts of supply
As with demand, certain factors can cause the supply curve to shift; these are:
Costs of production (e.g. wage costs, raw material costs, energy costs, costs of
Technological progress
Taxes imposed on firms (e.g. VAT, excise duties, the business rate)
Subsidies granted by the government to firms
If any of these alters the curve shifts, either left (decrease), or right (increase). This shift is shown
in the diagram below.

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Expenditure taxes and subsidies
When tax is added the supply curve often shifts. How it shifts is dependent on the tax; some taxes
are a percentage and will affect the gradient of the line, others will just cause it to shift (shown
A subsidy has the opposite effect, as the price of the product decreases.
Joint supply and competing supply
As with complementary/substitute goods, these can cause a shift in supply however, they are
known as joint/competing supply.…read more


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