Factors Affecting Supply - YouTube

Let's imagine we are all producers

And think like producers

We love profits like bees love honey

Revenue minus cost gives us profit

So anything that increases profit

Will make us produce, produce and produce

Money, Money, Money!

First, prices

When price increases, revenue increases

Hence, profits increase

That's a signal to produce more

In other words, increase quantity supplied

Input prices

Suppose we bake and sell cakes

Eggs, flour and labor all cost money

When price of inputs like eggs increases

Baking cakes become less profitable

So we'll supply fewer cakes

Technology

We used to bake with these

That's slow...

Due to improvements in technology

We now bake with these

Our productivity increases

So better technology helps us save cost

Which increases our profits

We'll gladly supply more cakes. Yum yum...

Competitive Supply

As bakers, we can bake cakes...or bread

If price of bread increases

This means baking bread is more profitable

Then... we should bake more bread!

Crap, supply of cakes has to decrease

Why? Because we use the same resources to bake bread and cakes

When we bake more bread

We have fewer resources left to bake cakes

In this case, we say that cakes and bread are in competitive supply

When supply of bread increases

supply of cakes has to decrease

There's another type of supply called joint supply

For example, beef and leather

To produce more beef

we have to slaughter more cows

This allows us to produce more leather too

So we say that beef and leather are in joint supply

When supply of beef increases

supply of leather increases as well

Expectation of future prices

Suppose you own some gold

If you think the price of gold is going to fall in the future

Oh...

Sell the gold as soon as possible

before its price falls further!

So supply of gold today will rise

If you think price is going to rise in the future

Then keep the gold today

so that you can sell it at a higher profit in the future

So supply of gold today will fall

Weather

Remember the tsunami that hit Japan in 2011?

That destroyed many factories

So supply of many stuff like cars and electronics decreased in the short term

And of course, with good weather

Supply increases

Number of producers

In 2010, if you wanted a tablet

You had to get an Ipad

As more manufacturers entered the tablet market

You have many choices today

When number of producers increases

Supply increases and vice versa

So this is the summary

But hey

there are so many factors affecting supply

How do I graph the supply curve?

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Next up: Supply curve