The Price Mechanism - Explaining Shifts in Market Supply
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Last updated 28 Nov 2021
What are the key factors that can cause a change in market supply for different goods and services?
This short revision video takes you through the key points to help your understanding of the price mechanism.
Supply is the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in each time period.
Market supply sums the supply of all individual producers in a market.
The key to understanding market supply is to focus on the following factors: (i) Costs of Production, (ii) External Shocks (iii) New Technology (iv) Government Taxation & Subsidies and (v) the Number of and Scale of Producers in the market.
For example, an outward shift in market supply might happen if / with:
- An industry-wide fall in supply costs such as energy & component parts
- The entry of new suppliers into a market or industry
- Impact of widely-adopted process innovations that lower supply costs
- Government subsidies / financial support to producers
- Impact of existing firms scaling up production in the long run
- Effects of a market being opened up to trade with lower cost imports