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Concept of Supply

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Introduction

Describe factors affecting Supply and with the aid of diagrams, give scenarios of each case. There are many factors affecting supply and they must all be isolated and analyzed individually and under the ceteris paribus assumption; that is; all other factors remain constant. The determinants of supply can lead to contractions or expansions if supply depends on the price of the good itself, or increases and decreases if any other factor than supply. The market price of the good/service will influence the producer's ability and willingness to supply it. If the price of that good is too low, producers would not be able to cover costs of production and thus would not supply item. Generally, according to the law of supply, as price rises, quantity supplied rises and as price falls, quantity supplied falls. ...read more.

Middle

Future expectations will also influence the level of supply; if the supplier believes the price will rise in the future, due to an increase in demand, supply of the good and service will also increase due to possibility of increased profits arising from supply of the good. The opposite effect will also occur if future prices fall. An example of this is DVD manufacturers. If they believe that future expectations are grim, due to a possible increase in sales of Blu-ray Discs, and a subsequent decrease in DVD sales they will generally reduce supply of the DVDs to reduce possible losses incurred. The quantity of a good or service supplied at any time will be affected by technology levels. ...read more.

Conclusion

The actual quantity of the good available is a limiting factor that affects supply. For example the quantity of iron that can be supplied is determined by the known reserves of iron ore. The number of suppliers also affects the quantity of good or service available; that is; as more suppliers enter an industry, supply increase and vice versa if suppliers leave. Seasonal influence generally plays a small role however this determinant generally only affects agricultural supply of perishable products such as wheat and fruit. An extended drought period would decrease supply of most agricultural products where else an extended bountiful time period would increase harvest hence supply. In conclusion, there are many factors affecting supply, and some of the main ones have been briefly described. These factors can either be detrimental or beneficial in relation to determining the allocation and distribution of supply. ...read more.

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4 star(s)

Response to the question

This essay engages with the question well, offering a strong insight into the factors determining supply. There are clear explanations, and a wide number of examples used. I know the question didn't directly ask for a discussion of elasticity, but ...

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Response to the question

This essay engages with the question well, offering a strong insight into the factors determining supply. There are clear explanations, and a wide number of examples used. I know the question didn't directly ask for a discussion of elasticity, but it would've been nice to see some awareness that there are factors which affect this too.

Level of analysis

The analysis is strong in this essay. I particularly like how the essay shows understanding of ceteris paribus, and the need to take each factor in isolation due to the dynamic nature of the factors affecting supply. I would be careful when referring to contractions and increases of supply - in my opinion this terminology is ambiguous. Saying that a change in price will cause a movement along the curve, and any other factor causes a shift in the curve, will ensure clarity. I would've liked to have seen some awareness that an increase in raw materials will increase the costs of production, and so the supply curve will shift left. I know this essay includes a diagram, but it is key that you explain it. Clearly explaining the mechanisms and effects is the secret to getting top marks for analysis in Economics. A short sentence such as: "The increase in raw materials has caused S to shift left to S1, thus increasing the equilibrium price from P to P1 and decreasing the equilibrium price from Q to Q1".

Quality of writing

This essay is well structured and has a clear introduction and conclusion. I would've liked to have seen a bit more evaluative language such as "it depends upon" or "the size of the shift is greatly affected by the size of". Other than that, this essay is strong!


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Reviewed by groat 21/02/2012

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