Supply

Understanding Supply

  • Supply means the total quantity of a particular product or service that the market can provide.
  • Producers base their supply on the price of the product. If the price is high, they are generally willing to offer more of the product.

Law of Supply

  • The law of supply states that other factors being constant (cetris paribus), when the price of a good rises, the supply of the good also increases.
  • Similarly, if the price falls, the quantity supplied will also decrease. This is represented graphically as an upward-sloping supply curve.

Supply Schedule and Supply Curve

  • A supply schedule is a tabular representation of the relationship between price and quantity supplied.
  • A supply curve is a graphical representation of the relationship. Price is on the y-axis (vertical axis) and quantity supplied on the x-axis (horizontal axis).

Factors Affecting Supply

  • Various factors influence supply, besides price. These include cost of production, technology, future price expectations, number of sellers, and government policy.
  • For example, an advance in technology may decrease the cost of production, leading to an increase in supply.

Elasticity of Supply

  • Elasticity of supply measures the responsiveness of the quantity supplied to a change in price of the good.
  • If supply responds greatly to a change in price, supply is considered elastic.
  • If supply doesn’t change much in response to a change in price, supply is seen as inelastic.

Impact of Supply on Market Equilibrium

  • Together with demand, supply determines the market equilibrium price and quantity.
  • When there is an increase in supply, with demand held constant, the equilibrium price falls and quantity increases.
  • Conversely, a decrease in supply, with demand held constant, causes the equilibrium price to rise and quantity to decrease.

Recap: In economics, understanding the concepts of supply and its determinants is crucial. How supply reacts to changes in price or other variables can significantly impact the market equilibrium and overall economic environment.