Explain the term ‘supply’.
CAMBRIDGE
A level and AS level
Year Examined
May/June 2019
Topic
Economics
👑Complete Model Essay
What is Supply?
In the realm of economics, understanding the concept of 'supply' is fundamental to comprehending how markets function. Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices in a specific market at a specific period of time.
Several factors influence the supply of a product or service, including:
Factors Influencing Supply
Price
The most significant factor affecting supply is price. Generally, a higher price incentivizes producers to supply more of a good or service, as it promises higher profits. Conversely, a lower price reduces the incentive to supply, potentially leading to a decrease in the quantity supplied. This positive relationship between price and quantity supplied is known as the law of supply. For example, a technology company observes a surge in demand (and consequently, price) for its new smartphone. In response, the company ramps up production to capitalize on the profitable market conditions, thereby increasing supply.
Costs of Production
The costs associated with producing a good or service play a crucial role in determining supply. Increases in input costs, such as raw materials, labor, or energy, can reduce profitability, causing producers to decrease supply. For instance, if the price of cocoa beans rises significantly, chocolate manufacturers might reduce production due to the increased cost of their key ingredient, leading to a decrease in the supply of chocolate.
Technology
Technological advancements can increase production efficiency, leading to a greater supply at the same or lower cost. Conversely, outdated technology or unforeseen technological challenges can hinder production and reduce supply. The automation of car manufacturing processes allowed companies to produce significantly more vehicles with the same amount of resources, leading to increased supply.
Government Policies
Government policies, such as taxes, subsidies, and regulations, can impact supply. For example, taxes on the production of certain goods can increase production costs and reduce supply. Conversely, subsidies can lower production costs and encourage producers to increase supply. If a government introduces stringent environmental regulations on the manufacturing process of a product, businesses might cut back on production due to increased compliance costs, leading to a decrease in supply.
The Supply Curve
The relationship between the price of a good and the quantity supplied is graphically represented by the supply curve. The supply curve typically slopes upward from left to right, reflecting the law of supply: as the price of a good rises, producers are willing to supply more of it.
Shifts in Supply
While the price of a good primarily influences the quantity supplied (movement along the supply curve), other factors can cause the entire supply curve to shift.
A rightward shift of the supply curve indicates an increase in supply – producers are willing to supply more at each price level. This could be due to factors like decreased production costs, technological advancements, or favorable government policies.
Conversely, a leftward shift of the supply curve represents a decrease in supply – producers are willing to supply less at each price level. This could be due to factors like increased production costs, resource scarcity, or unfavorable government policies
Conclusion
Understanding 'supply' is crucial to navigating the complexities of the market. It goes beyond simply having goods and services available; it’s about the intricate interplay of factors that influence producers' willingness and ability to offer products and services at various prices. By understanding supply, we gain valuable insights into market dynamics, price fluctuations, and the allocation of resources in an economy.
Explain the term ‘supply’.
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A-Level Business Studies Essay Guide: Understanding Supply
This guide will help you write a strong A-Level Business Studies essay on the topic of supply. It will provide you with a clear understanding of the concept and offer tips for crafting a compelling argument.
Defining Supply
Supply is a fundamental concept in economics and business studies. It refers to the quantity of a good or service that producers are willing and able to sell at a given price over a specific period of time. It's important to note that supply is not just about the amount of goods available; it also encompasses the producers' willingness to sell at a particular price.
Key Factors Influencing Supply
Several factors can influence the supply of a product or service. These include:
- Price of inputs: The cost of raw materials, labor, and other resources used in production directly impacts the supply. Higher input costs make production more expensive, leading to a decrease in supply.
- Technology: Advancements in technology can improve efficiency and reduce production costs, increasing supply.
- Government policies: Taxes, subsidies, and regulations can influence supply. For example, a tax on production could reduce supply, while a subsidy could encourage producers to increase output.
- Number of suppliers: The availability of more producers in the market can lead to an increase in supply.
- Expectations of future prices: If producers anticipate higher prices in the future, they might hold back some of their supply, hoping to sell it at a higher price later.
Understanding the Relationship Between Supply and Price
There is a positive relationship between the price of a good or service and the supply. This means that as the price increases, suppliers are willing to produce and offer more of the product. Conversely, as the price decreases, supply tends to decrease. This relationship is often depicted graphically using a supply curve, which slopes upwards from left to right.
Key Tips for Writing Your Essay
Here are some tips to help you write a successful essay on the topic of supply:
- Clearly define supply: Begin your essay by providing a clear and concise definition of supply, ensuring you understand the key elements.
- Explain the factors influencing supply: Discuss the various factors that can impact supply, providing relevant examples for each point.
- Use relevant theories: Incorporate economic theories that relate to supply, such as the law of supply and demand.
- Analyze real-world examples: Use real-world scenarios to illustrate your points. For example, discuss the impact of a government subsidy on the supply of a particular agricultural product.
- Offer a critical evaluation: Go beyond simply describing the concept of supply. Analyze the implications of supply relationships and consider potential criticisms or limitations.
- Structure your essay: Use clear headings and subheadings to organize your ideas and make your essay easy to follow.
- Proofread carefully: Ensure your essay has no grammatical or spelling errors.
Remember, understanding the concept of supply is crucial for success in A-Level Business Studies. By diligently studying and applying the tips provided in this guide, you'll be well equipped to write a strong essay on this important topic.
Extracts from Mark Schemes
Explain the term ‘supply’.
The quantity of a product / service that businesses are prepared to supply / produce (1). Raw materials sold to a business / coming out of a business / offer / deliver to the market (1). Quantity available to purchase (1). To supply at a given price / has a positive relationship with price (1). To supply at a given time / place (1).