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Hello,

Welcome to this Tutorial about the Supply Function. In a market environment, it is important to measure the offered commodities by the prices each of these commodities costs, this is done with the Supply Function. In financial markets terms, such Supply Function Measurements can be especially interesting when determining new trends or seasonal patterns. The Supply Function can be calculated and created for any commodities a supplier is offering, that can be anything from Raw Materials, Foods , Electronics etc. Important is to know what external and internal factors have an impact on the Supply Function as these factors can change the Supply Function and lead to a Left Side Shift or a Right Side Shift. In this tutorial, I am explicating what the Supply Function is, how to create the Supply Function, and also what are the main factors that are leading to the change of the Supply Function (Left or Right Side Shift).
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▶The Supply Function And How It Is Calculated:
When looking at the left side of my chart you can watch there how a typical Supply Function can be illustrated. The Supply Function shows the positive correlation of each piece and the amount of currency, in this case, US-Dollar the piece costs. For example, there is a Computer Hardware Company selling Technical Equipment such as a Mouse as seen in the Supply Function in my chart for 4 US-Dollar each Mouse, which means the company is selling two Mouses for 8 US-Dollar , the linear function then shows the positive correlation of the offered commodity in A = The Number Amount Of Pieces and the price P = The Price For The Amount A Of The Pieces. The Supply Function is then calculated by firstly creating the gradient which is created by dividing △ P with △ A and then multiplying the gradient with the amount A for each piece on the lower x-axis, additionally adding the value t which is the point on the y-axis where the function begins, in this example case it is t = 0, taking these steps it creates the Supply Function as seen in my chart.
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▶Dynamics That Lead To A Shift In Supply And In The Supply Function:
The Supply and therefore also the Supply Function for a certain commodity can be influenced by factors that either decrease or increase the Supply for a certain commodity. When the Supply is decreasing this simultaneously means that the price for the commodity is going higher while on the other side when the Supply increases the price for the commodity is lowered. These factors can be induced by the supplier which is offering the commodities itself or it can be induced by external factors such as policies and regulations or a change in the competition and market segment. In the following, I am listing 4 of the main reasons why a shift in Supply and therefore also in the Supply Function happens.

• 1. The Price of Production Factors Changes:
If the price of production factors to produce a certain commodity is increased or decreased this has effects on the Supply Function. Therefore if for example the price of plastic that is needed to produce the mouse in our example is increased this will lead to higher production costs and as a result of that to a lower offer as the company produces less (Left Side Shift). When the price for the copper that is needed to produce the mouse is lowered this will lead to an increased and accelerated production which turns out to come around as an increased offer and the Supply Function is shifted to the right side (Right Side Shift).

• 2. The Competition in the Certain Sector Changes:
A further factor that leads to a change in Supply and therefore in the Supply Function is when a shift in the Competition of the Certain Sector takes place. Therefore when the company has formed a good standing in the industry in which it is and there are other companies less competitive that go bankrupt this means there is less competition in the market and the Supply is decreased (Left Side Shift). Otherwise, when there are popping up several competitive companies in the same sector the Supply is increased (Left Side Shift).

• 3. Subsidies and Taxes:
A very crucial factor that is leading to a change in Supply and therefore in the Supply Function is external factors such as funding of subsidies the company received or taxes that are having negative effects on the production. In this case when the company is granted fruitful subsidies and funds by for example investors or funds the company can increase its produced offer (Right Side Shift). On the other side if the government comes around and measures higher taxes on the production of Computer Mouses this will lead to a lowered production and therefore decrease in the produced offer with lower demand given (Left Side Shift).

• 4. Expectations:
The fourth factor that has an impact on the Supply and therefore the Supply Function is what the company expects its market will be in the future. In this case, when a company expects that a fruitful season is coming around with many customers that are looking to buy the produced commodity it will increase the produced offer leading to higher Supply (Right Side Shift). Otherwise when the company expects a negative indication with many regulations and looming production factors coming around it is going to decrease the produced offer of commodities leading to a lowered Supply (Left Side Shift).
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In this manner, this is my Tutorial about the importance of the Supply Function, how it is calculated and what are the pivotal factors having an effect on the Supply and therefore the Supply Function. Put forward this is a major fundament for looking at certain companies in the market comparing them and calculating important changes in production as well future expectations together with other derivements the function can be implemented for.

Information provided is only educational and should not be used to take action in the markets.
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