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Tutorial Topic: What is supply? definition, type, example, determinants of supply.
A market is a place where buyers and sellers are engaged in exchanging products at certain prices.
In a market, the two forces demand and supply play a major role in influencing the decisions of consumers and producers.
The behaviour of buyers is understood with the help of the concept of demand. On the other hand, the behaviour of sellers is analysed using the concept of supply.
Table of Contents
Concept of Supply
In economics, supply refers to the quantity of a product available in the market for sale at a specified price and time.
In other words, supply can be defined as the willingness of a seller to sell the specified quantity of a product within a particular price and time period. Here, it should be noted that demand is the willingness of a buyer, while supply is the willingness of a supplier.
What is Supply?
Supply is an economic principle can be defined as the quantity of a product that a seller is willing to offer in the market at a particular price within specific time.
The supply of a product is influenced by various determinants, such as price, cost of production, government policies, and technology. It is governed by the law of supply, which states a direct relationship between the supply and price of a product, while other factors remaining the same.
Meaning of Supply
Supply has three important aspects, which are as follows:
- Supply is always referred in terms of price.
The price at which quantities are supplied differs from one location to the other.
For example, fast moving consumer goods (FMCG) are usually supplied at different prices in different prices.
- Supply is referred in terms of time:
This means that supply is the amount that suppliers are willing to offer during a specific period of time (per day, per week, per month, bi-annually, etc.)
- Supply considers the stock and market price of the product.
Both stock and market price of a product affect its supply to a greater extent. If the market price of a product is more than its cost price, the seller would increase the supply of the product in the market. However, a decrease in the market price as compared to the cost price would reduce the supply of product in the market.
Economist has given different supply definition but the essence is same.
In the words of McConnell, “Supply may be defined as a schedule which shows the various amounts of a product which a particular seller is willing and able to produce and make available for sale in the market at each specific price in a set of possible prices during a given period.”
According to Anatol Murad, “Supply refers to the quantity of a commodity offered for sale at a given price, in a given market, at given time.”
Let us understand the concept of supply with an example.
For example, a seller offers a commodity at 100 per piece in the market. In this case, only commodity and price are specified; thus, it cannot be considered as supply.
However, there is another seller who offers the same commodity at 110 per piece in the market for the next six months from now on. In this case, commodity, price, and time are specified, thus it is supply.
Classification of supply
Supply can be classified into two categories, which are individual supply and market supply.
- Individual supply is the quantity of goods a single producer is willing to supply at a particular price and time in the market. In economics, a single producer is known as a firm.
- The market supply is the quantity of goods supplied by all firms in the market during a specific time period and at a particular price. Market supply is also known as industry supply as firms collectively constitute an industry.
Types of Supply
- Market Supply
- Short-term Supply
- Long-term Supply
- Joint Supply
Determinants of Supply
- Price of a product
- Cost of production
- Natural conditions
- Transportation conditions
- Taxation policies
- Production techniques
- Factor prices and their availability
- Price of related goods
- Industry structure
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