What Supply Means

Sup­ply is a fun­da­men­tal eco­nomic con­cept. It is the quan­tity of a good or ser­vice that pro­duc­ers are will­ing and able to offer for sale at each price. Sup­ply of a prod­uct tends to rise when its price goes up, because sell­ing it becomes more prof­itable and firms expand pro­duc­tion.

Sup­ply is closely linked to demand, which is how much of a prod­uct peo­ple want to buy at a par­tic­u­lar price at a par­tic­u­lar time.

There are three key fea­tures of sup­ply. These include:

• Quan­tity sup­plied: The amount of a good or ser­vice that pro­duc­ers are will­ing and able to offer for sale at a spe­cific price.
• Time frame: The period over which the sup­ply is mea­sured. In the short term, the sup­ply may be fixed due to fac­tors such as lim­ited pro­duc­tion capac­ity. In the long term, pro­duc­ers can adjust their pro­duc­tion lev­els.
• Price: The rela­tion­ship between price and quan­tity sup­plied is direct, mean­ing that as the price of a good or ser­vice increases, the quan­tity sup­plied also increases, and vice versa.

A key part of under­stand­ing sup­ply is know­ing the law of sup­ply. It states that, as the price of a good or ser­vice increases, sup­pli­ers will increase their sup­ply so they can increase their prof­its.

Sup­ply sched­ule and sup­ply curve#

A sup­ply sched­ule is a tab­u­lar rep­re­sen­ta­tion of the var­i­ous quan­ti­ties of com­modi­ties that are sup­plied by a sup­plier at dif­fer­ent price lev­els over a period of time.

Sup­ply sched­ule shows the rela­tion­ship between the price of goods and the quan­tity of goods sup­plied. It can also be said that sup­ply sched­ule is a rep­re­sen­ta­tion of the law of sup­ply in a tab­u­lar form.

The law of sup­ply states that with fall in the price of com­mod­ity, there will be a decrease in the sup­ply and sim­i­larly, when the price of a com­mod­ity rises, it will result in an increase in the sup­ply of goods in the mar­ket, keep­ing all the other fac­tors con­stant.

Types of sup­ply sched­ule#

As with the demand sched­ule, there are two types of sup­ply sched­ule:

1. Indi­vid­ual sup­ply sched­ule
2. Mar­ket sup­ply sched­ule

Indi­vid­ual Sup­ply Sched­ule: Indi­vid­ual sup­ply sched­ule is a tab­u­lar state­ment of the var­i­ous quan­ti­ties of prod­uct that is sup­plied by an indi­vid­ual or a firm at var­i­ous price lev­els over a period of time, with all other fac­tors being con­stant.

Mar­ket Sup­ply Sched­ule: Mar­ket sup­ply sched­ule is a tab­u­lar state­ment of the var­i­ous quan­ti­ties of the prod­uct that all the sup­pli­ers in the mar­ket are will­ing to sup­ply at var­i­ous price lev­els dur­ing a spe­cific time period.

A mar­ket will be full of sup­pli­ers who will be sup­ply­ing a par­tic­u­lar com­mod­ity and all of these sup­pli­ers will be hav­ing their indi­vid­ual sup­ply sched­ules. There­fore, the mar­ket sup­ply sched­ule is a sum total of all the indi­vid­ual sup­ply sched­ules of the sup­pli­ers of the mar­ket.

Mar­ket Sup­ply Sched­ule can be rep­re­sented as

Sm = SA + SB + …………….

Where Sm = Mar­ket Sup­ply Sched­ule

SA = Indi­vid­ual Sup­plier A

SB = Indi­vid­ual Sup­plier B

Key terms#

Sup­ply curve

The sup­ply curve is a graph of the rela­tion­ship between the price of a good or ser­vice and the quan­tity sup­plied for a given period.

Elas­tic­ity of Sup­ply (ES)

The price elas­tic­ity of sup­ply is a mea­sure of the degree of respon­sive­ness of the quan­tity sup­plied to the change in the price of a given com­mod­ity.

Mar­ginal Cost (MC)

In eco­nom­ics, the mar­ginal cost is the change in total pro­duc­tion cost that comes from mak­ing or pro­duc­ing one addi­tional unit.

Economies of Scale (EOS)

The con­cept of economies of scale describes the rela­tion­ship between the cost advan­tages received by a com­pany and its rate of out­put (i.e. the vol­ume of units pro­duced and sold).

Com­mon ques­tions#

What are the Excep­tions of the Law of Sup­ply?#

There are some sit­u­a­tions under which the law of sup­ply of goods is not applic­a­ble. In these cases a higher price does not bring a larger sup­ply. The excep­tions are:

• Monop­oly
• Clo­sure of Busi­ness
• Per­ish­able Goods
• Com­pe­ti­tion
• Agri­cul­tural Prod­ucts
• Out of Fash­ion Goods
• Rare Goods

What is the for­mula for Law of Sup­ply?#

Qxs = Φ (Px)

Where:

• Qxs – Quan­tity sup­plied of com­mod­ity/good x by the pro­duc­ers
• Φ – Func­tion of
• Px – Price of com­mod­ity/good x

What are the assump­tions of law of sup­ply?#

• The price of other com­modi­ties is con­stant.
• The state of tech­nol­ogy has not changed.
• The price of fac­tors of pro­duc­tion is con­stant.
• The tax­a­tion laws remain the same.
• The pro­ducer’s objec­tives are con­stant.

What are the four basic laws of sup­ply and demand?#

• If sup­ply increases and demand stays the same, prices will fall.
• If sup­ply remains con­stant and demand decreases, prices will fall.
• If sup­ply decreases and demand stays the same, prices will rise.
• If sup­ply remains con­stant and demand increases, prices will rise.