Define supply and explain what causes change (shifts) of supply and Essay - 1

Define supply and explain what causes change (shifts) of supply and how supply can determine prices - Essay Example These players will try to compete with each other to provide significant amount of value to the customers and thereby generating competitive advantage. It is important to note that the state of equilibrium attained by the intersection of demand and supply curve keeps on moving and is not constant in nature. As a matter of fact, it can be said that there can be various factors which may lead to shifts in supply curve. Abrupt rise of prices of certain commodities, which has happened due to the rise of inflation rate in recent times, can at times lead to significant changes in supply. Due to the significant rise in prices of commodities, the general masses become incapable to purchase the same at high rates. This results in building up of inventory. As a precautionary measure to cool down inflation and maintain a significant amount of balance in the market, the suppliers and manufacturers focus on lowering down the supply rate of the commodities (Mankiw, 1998, p. 80). The effect of recession can also induce significant amount of supply shift. In times of recession, for the purpose of boosting the economy, the rate of interest is generally reduced. This automatically contributes to a significant rise in the institutional lending as well as boosting of production of various commodities in the economy. Hence, recession can also initiate significant shifts of supply of commodities in the economy of a particular region (Mankiw, 2011, p. 745). It is observed that the price of multiple input variables and resources can bring about a significant influence in the supply of a particular commodity. It can be said that in the case of rising input prices, there might be immense pressure on the manufacturer to cut down on various costs. This might contribute to a lower amount of production by the manufacturer. Hence, this can automatically contribute to a movement in commodity supply in the market