SUPPLY

Underlying the theory of supply are assumptions similar to those affecting demand. Producers have information on products that will maximise profits and they know how inputs can be combined to produce these goods efficiently. Three factors determine the quantity of goods each producer will supply:

• THE PRICE OF THE GOOD

• THE AVAILABILITY AND COST OF LAND, LABOUR AND MANAGEMENT
  More will be produced as these become increasingly available and/or because of a decrease in price.

• TECHNOLOGY
  Improvements in technology increase the supply of a good.
• EXAMPLE
  New drainage technology allows the use of previously waterlogged land.

For land, relevant supply factors are house prices, legal controls on land use, the size of the housing stock, construction costs and construction techniques. A supply schedule illustrates the relationship between the quantity of a good that an individual or groups of suppliers is/are able and willing to produce at various prices within a given period.

As with the demand schedule, the supply schedule assumes that the only determinant of supply that changes is price. The remaining determinants of supply, production techniques, cost of inputs, the price of related goods and the expected future price of the good are held constant. An increase in the price of a particular good means that suppliers will increase their income by producing more of that good and less of others. The shape of the curve is a mirror reverse of the demand curve.