Theory and law of supply

Theory and law of supply

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  Theory and lawof supply Heera KC MSc. Nursing(Midwifery) PBN 2nd year, Co-ordinator
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  Meaning of supply •Supply refers to the quantity of commodity offered for sale considering different possible prices at a point of time. • “The supply of goods is the quantity offered for sale in a given market at a given time at various prices” Thomas
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  Cont... • Supply isa fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. • Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph. • This relates closely to the demand for a good or service at a specific price; all else being equal, the supply provided by producers will rise if the price rises because all firms look to maximize profits.
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  Supply and quantitysupplied • Supply refers to the whole set of quantities of a commodity offered for sale corresponding to different possible prices at a point of time. • Quantity supplied on the other hand refers to a particular amount of a commodity offered for sale at a particular price at a point of time.
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  Cont... Supply schedule canbe shown as points on a graph. The graph lists prices on the vertical axis and quantities supplied on the horizontal axis. Each point on the graph shows how many units of the product or service a producer (or group of producers) would willing sell at a particular price. The supply curve is the line that connects these points.
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  Factors affecting supplyof commodity/Changes in Supply Curve
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  Cont...Input prices/ resourcescost: If the wages of physicians were to rise, this increase in an input cost would result in suppliers’ willingness to offer as much for sale at the original price. The supply would decrease, shifting the curve to the left. • Technological change: As technology improves for producing a healthcare product, the goods become cheaper to produce. Certainly, technological changes that make products more costly without improving quality are ignored. As the product becomes cheaper to produce, suppliers are willing to offer more for sale ata given price. This increases supply, thus shifting the supply curve to the right.
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  Supply of officevisit by physician: physicians would be willing to offer ten office visits if the price were $90 per visit. At a higher price, say $100, more visits would
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  Prices of production-relatedgoods: The price of a good related to production, such as a rise in the price of radiology services, also would be relevant. Because physicians can use radiology for diagnosis as well as treatment, this will cause the supply to decrease, thus shifting the supply curve to the left. · Size of the industry:As more firms enter the market, the supply of the product will be greater.
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  Government policies: Governmentintervention can take many forms including environmental and health reguations, hour and wage laws, taxes, electrical and natural gas rates and zoning and land use regulations. • These regulations can affect a good's supply.
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  • Weather: Fora number of products, acts of God such as weather will tend to affect production. The direction of the effect is obvious: good weather increases supply. • Expectations: Sellers' expectations concerning future market conditions can directly affect supply. • Goal of the firm: Maximize the profit or maximize the output or employment
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  – Subsidies andtaxes: government subsides encourage production, while taxes discourage production – Technology: Better the technology lower the cost of production →more production →more supply – Other goods: businesses consider the price of goods they could be producing. Generally higher the price, higher the quantity supplied and vice versa. – Number of sellers: Higher the number of firms leads to increase the supply. – Expectations: businesses consider future prices and economic conditions – Resource costs: cost to purchase factors of production will influence business decisions. ( STONER: factors that shift the supply curve)
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  Law of supply •The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa. • The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale.
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  Law of supply •Assumptions of the law:  No change in price of the factors of production.  No change in technology.  No change in the goal.  No change in the price of related goods.  No expectation of change in the price in the future.
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  Relationship between demandand supply • As the price for a good rises, the quantity supplied rises and the quantity demanded falls. • As the price falls, the quantity supplied falls and the quantity demanded rises. • The law of supply holds that producers will normally offer more for sale at higher prices and less at lower prices.
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  Cont...