Definition of Supply
The general meaning of the term supply is to make things available. In Economics supply means the total amount of goods or services that are available to the market on demand. The amount of a product that firms are able and welling to offer for sale is called the quantity supplied. (Crystal & Lipsy, 2002). Like demand, supply too is a desired flow. That means it is not how much a firm can actually sell, rather it is the amount or quantity firms are welling to sell per period. (Crystal & Lipsy, 2002)
Determinants of Supply
There are fou major determinants of supply.
- The price of the product
- The prices of inputs
- The goals of producing firms
- The state of technology
The Supply Function
When the supply determinants are represented mathematically in an equation form, it is called the supply function.
qsn= S(Pn, F1……….Fm)
The left of the equation represent the quantity supplied of the product n. Pn is the price of the product while F1….Fm represent the prices of all factors of production.
Supply and Price
While other things being equal, the quantity of any product offered for sale is positively related to the product’s own price. That means that the quantity rises when price rises and falls when price falls. The reason behind is that higher the price, higher the profit and greater is the incentive for more production.
Let us take a hypothetical example of apples. The following table shows examples of apples where the product increases (quantity supplied) with increase in price.
|Price ($ per kg)
(in kg per month)
Shifts in the Supply Curve
Like the demand curve, supply also changes with the variation in vairable.We have seen above the the quantity supplied is positively related to the market price. A shift in the Supply curve means that each change of the variables, a different quantity of a product will be bought. The shift may either be right or left. A right shift in the curve means that more goods shall be supplied while a left shift means less production of the same product.
Impacts of Variables other than the Price
- Prices of inputs
A rise in the prices of inputs will shift the curve to the left i.e. less quantity supplied, while a fall in the prices of inputs will shift it to right i.e. more quantity will be supplied.
- Goals of the Firm
The goals of the firm may vary. A firm may want to maximize profits or increase it size. Another may be cautious about its image in the public and prefer go along safer lines. If the purpose of the firm is only to maximise profits the curve will positively shift. However, if there are other goals other than the profit maximisation, then the there shall be change in the curve depending upon the firm’s goals and objectives.
When new technology is introduced, it may decrease the cost of production and the firm will be willing to produce more, so the the curve shifts to the right.
Points to Remember
- What is supply?
- Definition of Supply
- The supply curve
- Shifts in supply curve
- The supply function
- Supply and Pirce