The Theory of Market Supply Supply is the quantity of a product that a producer is willing and able to supplyl sell onto a market at a given price in a given time period The law of supply - a greater quantity of a good or service will be supplied at a higher price. In part this is due to the profit incentive. For example, if you are a business extracting crude oil, you stand to make a higher profit for every barrel supplied if the market price is $100 compared to a price of $60. A change in market price of the product itself will cause a movement along the market supply curve But changes in other conditions of supply (i.e. non-price factors) will bring about a shift in the supply curve. Most of these supply conditions relate to the costs of production facing a business. But supply can also be affected by changes in the prices of other goods and services, price expectations, shifts in technology, supply-shocks that disrupt normal supply and also the impact of government regulations on producers. tn the exercise below ldentr'fy whether the change in the market will bring about elther a movement along the supply curve or a shlft in the supply curve at each pn'ce. And then declde whether you expect to see a contraction/expansion of supply (for a movement along) or a fall/Increase in supply (for a shift). Exercise on the determinants of supply Change in the market Movement (i) For a (ii) For a shift along curve movement - in supply - OR a shift in expansion or increase or the supply contraction? decrease? curve? Supply of frozen An increase in the price of pizzas frozen pizzas due to an increase in demand Wheat supply Drought conditions in East (UK) Anglia are expected to continue through to harvest time Christmas cards A fall in the international price of PUIP Market supply for A rise in the price of aviation transatlantic flights fuel Market supply for Two airlines from Asian transatlantic flights countries enter the market for flights from London to New York Market supply of Many cotton crops across Asia clothing in retail are destroyed by floods stores Supply of new The local council relaxes flats to rent in the planning laws for property city of Oxford developers The market supply The US government offers a of corn in the USA subsidy of $2 pertonne for wheat farmers who convert their wheat into bio-fuels Change in the market Movement (i) For a (ii) For a shift along curve movement - in supply - OR a shift in expansion or increase or the supply contraction? decrease? curve? World supply of New transitional government in petroleum Libya announces the reopening of Libyan refineries Supply of workers The government increases the to the fruit-picking minimum wage that must be industry paid to people working in the farming industry Market supply of A long term rise in the market milk in the UK price of lamb Supply of real ale The government reduces the tax applied to each bottle of real ale produced in the UK Supply of A government subsidy of 20 is mountain bikes offered to mountain-bike manufacturers to encourage cycle use in towns and cities Supply of white A rise in the world price of flour bread Market supply of Improvements in production bottled water technology reduce the amount of plastic needed for each bottle Supply of package Expectations of a recession in holidays to Spain the UK economy in 2012 and Italy in 2012 Supply of organic A fall in the productivity of chocolate farmers supplying organic chocolate Market supply of Expectations of a rise in the potato chips price of potatoes in world markets Supply of frozen The government introduces a pizza tax on all high-fat frozen foods of 10% (including pizza) Market supply of The government introduces strawberries tougher regulations on the quality of strawberries that can be sold in UK supermarkets