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.
Table of Contents
- 1 What is Supply?
- 2 Concept of Supply
- 3 Meaning of Supply
- 4 Supply Definition
- 5 Supply Example
- 6 Classification of supply
- 7 Types of Supply
- 8 Determinants of Supply
- 9 Supply Function
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.
Read: Laws of Economics
Concept of Supply
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.
Meaning of Supply
What is Supply Meaning? 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.
Read: Law of Supply
What is Supply Definition? Economist has given different supply definition but the essence is same.
Read: What is Supply Schedule?
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.
Read: What is Supply Curve?
Classification of supply
What is Supply Classification? 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.
- 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
Read: What is Demand Curve?
Determinants of Supply
9 Determinants of supply are:
- 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
Price of a product
The major determinants of the supply of a product is its price. An increase in the price of a product increases its supply and vice versa while other factors remain the same.
Cost of production
It is the cost incurred on the manufacturing of goods that are to be offered to consumers. Cost of production and supply are inversely proportional to each other.
The supply of certain products is directly influenced by climatic conditions. For instance, the supply of agricultural products increases when the monsoon comes well on time.
Better transport facilities result in an increase in the supply of goods. Transport is always a constraint to the supply of goods. This is because goods are not available on time due to poor transport facilities.
Government’s tax policies also act as a regulating force in supply. If the rates of taxes levied on goods are high, the supply will decrease. This is because high tax rates increase overall productions costs, which will make it difficult for suppliers to offer products in the market.
The supply of goods also depends on the type of techniques used for production. Obsolete techniques result in low production, which further decreases the supply of goods.
Factor prices and their availability
The production of goods is dependent on the factors of production, such as raw material, machines and equipment, and labour.
The prices of substitutes and complementary goods also influence the supply of a product to a large extent.
The supply of goods is also dependent on the structure of the industry in which a firm is operating. If there is monopoly in the industry, the manufacturer may restrict the supply of his/her goods with an aim to raise the prices of goods and increase profits.
Read: Law of Supply
Supply function is the mathematical expression of law of supply. In other words, supply function quantifies the relationship between quantity supplied and price of a product, while keeping the other factors at constant.
The law of supply expresses the nature of the relationship between quantity supplied and price of a product, while the supply function measures that relationship.
The supply function can be expressed as:
Qs = f (Pa, Pb, Pc, T, Tp)
Qs = Supply
Pa = Price of the good supplied
Pb = Price of other goods
Pc = Price of factor input
T = Technology
Tp = Time Period
According to the supply function, the quantity supplied of a good (Qs) varies
with the price of that good (Pa), the price of other goods (Pb), the price
of factor input (Pc), the technology used for production (T), and time period
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