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This lesson covers the theory of supply — the other fundamental building block of market analysis alongside demand. You will learn about individual and market supply, the law of supply, movements along versus shifts of the supply curve, and the conditions (determinants) of supply. A thorough understanding of supply is essential for analysing how markets work at A-Level.
Key Definition: Supply is the quantity of a good or service that producers are willing and able to offer for sale at a given price, in a given time period.
Just as with demand, both willingness and ability are required. A firm may wish to supply a product, but if it lacks the raw materials, labour, or technology, it cannot do so.
Key Definition: The law of supply states that, ceteris paribus, as the price of a good rises, the quantity supplied rises, and vice versa. There is a direct (positive) relationship between price and quantity supplied.
The upward slope of the supply curve can be explained by two factors:
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