Introduction to Supply in Economics

So what would change the overall supply of a good? Well, a change in the costs of production or an improvement in technology are two things. If the costs of production increase, the supply curve will shift to the left, because less can be produced at the same price – and vice-versa. With an improvement in technology, the supply curve will always shift to the right, because technological improvements will cause an increase in the quantity supplied. Another possibility is a change in the climactic conditions – this is especially important for agricultural goods. A drought would mean that less crops would be supplied at each price level.

Sometimes two goods are supplied from one resource, although this is rare. If the price of one of the two goods increases, (remember, the “price” is the price that the good is sold at) then there will be an extension in supply for that good. However, since there is another good that is produced from the same resource, then the supply of that good will increase as well as a side-effect. The typical example here is beef and leather; both of these goods come from cows. If the price of beef goes up, then more cows will be killed to supply more beef to the market. This will also result in an increase in the supply of leather. In short, the increase in price of a complementary producer good, (a good that is created from the same resource) will cause an increase in the supply.

A similar rule applies for joint producer goods. An example of two joint producer goods are wheat and barley: on a farm, these would share the land – they would be produced jointly using the same resources. If the price of wheat increased, there would be an extension in the supply of wheat. This would result in more resources being allocated to the production of wheat, which means that the supply of barley would decrease. In short, an extension in the supply of a joint producer good will lead to the decrease in the supply.

That’s it for a basic explanation of supply in economics.