Supply of Goods and Services

Supply of Goods and Services

Concept of Supply

  • Supply is the quantity of products or services that a business is willing and able to provide to the market at different price levels.
  • It is important to understand that supply can be influenced by various factors like price, cost of production, technology, and expectations about the future.

Law of Supply

  • The law of supply states that, everything else being equal, the quantity supplied of a good or service tends to increase as the price increases.
  • However, the exact amount of increase depends on the price elasticity of supply, which can be perfectly elastic, perfectly inelastic, or somewhere in between.

Supply Curve

  • A supply curve is a graphical representation of the law of supply, showing the relationship between price and quantity supplied.
  • The supply curve typically slopes upwards from left to right, indicating that more will be supplied at higher prices.

Shift in Supply

  • A shift in supply refers to a change in the overall quantity of a good or service that suppliers are willing and able to provide at different price levels.
  • This shift can result either from a change in the cost of production, technological advancements, changes in the price of related goods, or changes in supplier’s expectation about future prices.

Equilibrium in the Market

  • The interaction of supply and demand in the market creates an equilibrium price and quantity. This is where the quantity demanded equals the quantity supplied.
  • This equilibrium is crucial for the efficient functioning of the market.

Price Mechanism

  • The price mechanism plays a critical role in resolving the basic issues of what, how, and for whom to produce.
  • It adjusts supply and demand through price movements, helping to allocate resources efficiently in a market economy.

Effect of Government Intervention

  • Governments may intervene in the market to control supply, for instance through regulations, taxes, subsidies, or setting minimum or maximum prices.
  • Understanding the potential effects of such intervention is crucial, as it often has significant implications for businesses and consumers.