Costs Of Development And Determinants Of Supply

Supply of something increase as the determinants of supply changed. One of the determinants is cost of creation. Cost of creation is amount of money or investments used to produced a good. When it reduces, the way to obtain the good increase. This is because producers are willing to produce more as the price tag on production is leaner.

For example, Mr Wong is a vase developer. He usually produces 30 vases monthly. Unfortunately, the price of raw material which can be used to produce vases has lowered. At the same time, cost of production boosts. Hence, Mr Wong, as a company willing to create more under less expensive of creation, but to earn more income than before.

Besides that, the improvement of technology can cause the way to obtain a product increases. Nowadays, technology is bettering and able to invent machine or use minimal time and resources to raise the productivity of something. Thus, a sizable amount of product can be produced throughout a short period of your energy, so the resource increase.

For illustration, nowadays technology enable to improve the efficiency of vehicles as machines are created. Therefore, smaller time can be used through the producing process. However, more products have been produced. Way to obtain a product is therefore increased.

Finally, the expectation of company may cause the way to obtain a product to increase. Whenever a producer expect the price tag on a product increase in the future, the producer will take the chance to increase the way to obtain the product in order to earn much more profit when the expected price actually increased.

For instance, the price of salt is expected to raise in the future. Producers will produce more now in order to get additional revenue in the future. Hence, way to obtain a product boosts.


Rationing function of price is the capability of the competitive makes of source and demand to a price at which selling and buying decisions are constant. It occurs to ensure that no surplus or lack appeared in market. While learning resource allocation is how the resources are completely used while creating a product to increase the earnings but minimise the expense of production at exactly the same time.

Price flooring surfaces is the least price above the equilibrium price which placed by the government. The aim of setting price floors by the federal government is to safeguard only the maker but also the consumer. Producers will have the minimum income as the poor or average consumers is affordable to choose the product. However, if the purchase price surfaces is too low, shortage may happen at that one of time. Homes is one of the nice examples. If the price floors placed by the government is too low, many consumers have a tendency to buy more however the producers aren't willing to create more because the price is low. In this situation, quantity demand surpasses quantity resource, therefore shortage occurred. Moreover, makers will allocate more resources on other more valuable product rather than creating a house. Hence, the resources are not allocating in an equilibrium and proper way. Finally, it triggers inefficiency in resources allocation. Perhaps some resources will be squandered.

On the other side, price ceilings is the maximum price which set by the government. It seemed to protect the consumers and also avoid the producers from selling something at a very high price to achieve a higher income. In this case, suppliers only can sell their products below or at the purchase price ceilings. Average and poor consumers will find the money for to consume a high quality product but under a lower price at exactly the same time. However, if the purchase price ceilings place by the government is too high, a predicament called surplus will happen. On the financial perspective, producers are prepared to produce more as the purchase price is high. But less consumers are willing to choose the product as a result of same reason again. For example, imported vehicles are very costly for the average consumers. But manufacturers have a tendency to produce more as the price is higher than local vehicles. Many people aren't affordable to buy imported vehicles. Quantity supply exceeds number demand. Lack is therefore happened. Additionally it is an imbalance in resources allocation if scarcity happened. Resources used to produce an imported vehicle is more than the resources used to create local vehicles. Smaller resources are being used to create other goods. Inefficiency in resources allocation took place.

As a conclusion, government have to discover a way to create the price of a product, not too much however, not too low also to be able to protect both sides which are consumers and makers.



Decrease popular is a move of leftward on the demand curve while decrease in quantity demand is an upward movement along the demand curve. Reduction in demand triggered by the changes of determinants. While the determinants changed, they will affect the move of demand curve. The determinants which can cause decrease in demand include preference, income, range of consumers, consumers' expectation and more.

For example, taste of consumers has transformed suddenly. They do not like apple but choose orange. Therefore, the demand of orange will reduce. A leftward transfer will occurred on the demand curve. Others determinants remain constant.

Furthermore, income of consumer also counted as a determinant. When income of consumers lessens, the demand of a product also will decrease. For illustration, Mr Hong's salary has been deducted into RM1500 monthly. He usually buys 10 oranges weekly. However, he has decided to buy 5 weekly. The demand of orange cut down and shift the demand curve left on the demand curve. Others determinants stay constant.

Besides that, consumers' prospects may cause changes on demand curve. For instance, consumers expect the price tag on car will fall season by 10%, the demand for car will reduce. Hence, a leftward shift will be seen on the demand curve. Others determinants continue to be constant.

On the other palm, the one determinant which can cause the quantity of demand to decrease is price of the good. When price raises, the quantity demand will reduce. The higher the price, the lesser the quantity demand. Consumers are not eager to buy something when the purchase price is not fair. Therefore, variety demand decreases, a upward motion will appear on the demand curve.

Examples or tow different demand curve are as below


Quantity demand

A leftward transfer from D0 to D1 on the demand curve. ( reduction in demand )


Quantity demand

A upward motion over the demand from point A to point B. ( reduction in amount demand )


Income elasticity of demand is the measurement of responsiveness to an alteration in incomes by purchasing more or less at a specific good. The solution for calculating income elasticity of demand ( YED ) is as below

YED= the percentage change in number demanded / the ratio change in household's income

Three levels of income elasticity of demand include negative, positive and zero. A confident value shown in income elasticity of income means that the partnership between quantity demand of your good and income is positive. When income increases, the number demand of the nice will increase. Additionally, it can further categorised into tow types

If the worthiness of income elasticity of demand is from 0 to at least one 1, this means that ratio change in volume demanded of the good is smaller than the ratio change in income. In this example, when income increases, quantity demand of your good only increase by a small amount. Types of the nice include food, toothbrush, bus ticket and others. It does not mean that consumers will buy more when their income increases. Those goods are called normal goods.

However, when the value of income elasticity of demand is bigger than 1, this means that ratio change in number demanded of the good is higher than the percentage change in income. In this case, an obvious increase in quantity demand of a good can be seen easily when income raises. For instance, brand cloths, brand name shoes, branded personal computers and so forth. It means that great responsiveness can be seen on quantity demand when income increases but only a little amount. Those goods are called luxury goods.

When the worthiness of income elasticity of demand is smaller than 1 this means negative, the number demand falls as the income rises. When consumers' earnings increase, they could buy top quality, trusted product rather than low quality product such as second-hand cell phone, brandless tissue and more. Those goods are called substandard goods.

When the value of income elasticity of demand is zero, the quantity demand will remain unchanged as the income modified. Consumers won't ingest more for something although their income has transformed. For illustration, rice, sodium, sugar plus more. It generally does not mean that consumers will buy more when their incomes increase. Those goods are called necessity.



The price elasticity of source is the measurement of the responsiveness of producers on the changes in the purchase price. The determinants of price elasticity of supply include time frame and the lifestyle of spare capacity.

The first determinant is time period. Makers usually cannot provide more supply of their product in a short period of time immediately. The longer the period of time, the greater product will be provided. For example, an industry which produces 5000 containers of milk monthly. When the demand increases instantly, government suggests to produce 10000 bottles of milk per month. The industry is not able to change their efficiency in a short time of period. Perhaps after few weeks, they are only in a position to produce the number which is necessary by the marketplace.

For long haul, the suppliers can find an alternative solution way to obtain enough resources or raw materials used to produce the goods. Thus, more goods will be produce easily. The supply therefore is vey flexible.

However, brief run means that the companies need to supply more in a brief time frame to achieve the number demand of the marketplace. In cases like this, suppliers are incredibly difficult to supply more because they do not have sufficient time to prepare for this. Hence, the supply can be very inelastic as need to supply more very quickly of period.

The second determinant is existence of extra capacity. If the capability of a firm of industry is larger, more stock can be stored inside. At exactly the same time, suppliers are able to source more. In this condition, the supply will become more elastic. As being a restatement, the bigger the capacity, the greater elastic the resource is.


For an example, Mr Leong has started a small business on selling cell phones. Its elasticity coefficient is projected as +10. The business programs to increase its twelve-monthly quantity of cell phones by 10%. The price of the products must drop in order to raise the number to be sold. Price elasticity of demand concept will be utilized to determine the percentage reduction in price of the cell phones

( percentage change in amount demand ) / ( ratio change in cost )

= elasticity of demand

= 10 / X = +10

X = 1

As a bottom line, the price must lower by 1% to raise the number to be sold by 10%.

Businesses use price elasticity to ascertain their charges strategy. If the demand for a good is stretchy, producers will try to lessen down the purchase price in order to increase the total income in a small business. For instance, the demand for nike shoes is elastic. Therefore, suppliers will lower the price tag on nike shoes to improve the total income by the end. That is why mega sales are organised on a yearly basis every where to earn additional income.

However, if an inelastic product has been produced by a producer, she or he will try to improve the price to hide his or her loss. This is because the responsiveness of the consumers is very little if the product is inelastic, although the price has dropped. For example, swatch designer watches are inelastic products. Providers will boost the price to get more revenue, instead of decreasing the price of product to boost the amount to be sold.



Price of seafood ( per kg ) RMConsumer surplus is the benefits received by consumers. The benefit is the difference between your price for consumers willing to cover something and the real price of the merchandise.

Quantity demand of fish (units)

The graph of consumer surplus has been proven as above. This example happens when the price for consumers willing to pay is higher than the equilibrium price. The idea E1 symbolizes equilibrium price. As the shaded area, B1 is the consumers surplus. The graph shows that consumers are ready to pay higher than the price, P1 ( equilibrium price ) for a product. The equilibrium price is currently lower than the purchase price which consumers happy to pay. Hence, consumers gained consumer surplus by paying less but also get the same product. For instance, consumers are only willing to cover a fish ( per kg ) is RM5. However, the equilibrium price which both consumers and companies have decided with is RM3. Therefore, the consumers can save RM2 for buying the same good.

Price of slippers ( per couple ) RMOn the other side, producer surplus will occur in the market. Consumer surplus is the benefits received by consumers. The benefit is the difference between the price for makers willing to market and the genuine price of the merchandise.

Quantity demand of fish (units)

For example, Mr Chan likely to earn RM5 for his product, slippers. However the selling price is greater than his expected price, which is RM20. Therefore, he attained producer surplus by RM15.


Books ( products )

Computers ( units )

( Graph of production opportunity frontier ( PPF ) )

The PPF graph shown the two products, books and pcs are produced with the factors of learning resource and technology fixed.

Scarcity is a situation when there is limited resources but you can find unlimited wants at the same time. The point beyond your curve consider as unattainable. For example, consumers need 10 catalogs and 10 computer systems at exactly the same time. Associated with there is bound resources to create both products needed by the consumers. The resources is inadequate.

Therefore, scarcity always causes the consumers to make alternatives to increase their satisfactions. For instance, consumers should sacrifice 2 literature to be able to get 2 more computer systems from point A to point C. It really is either to stop good A to gain more once and for all B, or vice versa. Selections are made is determined by the choice of the consumers.

Moreover, the third economic notion is opportunity cost. It really is counted as the second best option and it will be sacrificed to gain the best option. When consumers have to sacrifice to obtain additional of another good, the sacrificed good is consider as opportunity cost. For illustration, if the consumers request for 6 computers rather than 4, they need to sacrifice 1 e book to get 2 more computer systems. The book which includes been sacrifice is opportunity cost.

Finally, from economic viewpoint, scarcity forced the consumers to make choices to maximise their satisfaction. The sacrificed alternatives are called opportunity cost.

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