Cambridge International as and a level Economics Ebook

Other supply-influencing factors
Th
ese are varied and oft en specifi c to the particular 
industry or activity. For example, the supply of 
agricultural produce is oft en infl uenced by weather 
conditions. Adverse weather can lead to a dramatic 
reduction in supply; good weather conditions in contrast 
can result in bumper harvests for producers. Some 
manufacturers may be able to switch production from one 
product to another fairly easily, so the relative profi tability 
of alternative product types may be important. In 
fi nancial markets, such as the stock market or the foreign 
exchange market, supply may be signifi cantly infl uenced 
by expectations of future prices and unanticipated 
exogenous shocks as a result of a political crisis.
Th
ere is also the case of 
joint supply
. A good example 
is soya bean production, where part of the crop is used 
for human food products while what is left over is used to 
produce animal feed.
Joint supply: 
when two items are produced together.
KEY TERM
Changes in the equilibrium
Th
e equilibrium will change if there is a disturbance to 
the present market conditions – this could come about 
through a change in supply conditions (the supply curve 
shift s) or a change in demand conditions (the demand 
curve shift s).
A change in demand
Look at 
Figure 2.16
– notice we are using 
P
and 
Q
symbols 
again instead of actual numbers – if there is an increase 
in demand (
D
0
to 
D
2
), then, at the original price, there is 
now a disequilibrium of excess demand equal to 
Q
1
−
Q
0
. 
As suppliers begin to recognise this they will start to raise 
the price and increase the quantity supplied. Th
e rise in 
price will lead some consumers to decide they do not 
want to buy the product at the higher price. Although the 
process may take some time, the market will move back 
towards the new equilibrium at 
P* Q*
, where the market 
is once more in balance. Note that the new equilibrium is 
at a higher price with a larger quantity traded than in the 
original situation.