The Concept of Supply
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This document defines supply as the quantity of goods and services producers are willing and able to provide at various prices over a given period. It distinguishes between stock, which is existing output, and supply, which is output brought to market. The supply schedule shows the different quantities supplied at different prices, while the supply curve graphs this relationship. Determinants that shift the supply curve include improvements in technology, production costs, the number of sellers, taxes and subsidies, and weather conditions.
The Concept of Supply
- 2. What is SUPPLY? Supply is a schedule of various quantities of commodities which producers are willing and able to produce and offer at various prices in a given time and place. The amount of goods and services available for sale in a given period of time and place.
- 3. Stock vs. Supply Stock is the quantity of output which a seller has with him and has not yet brought for sale. Supply is a quantity of output brought from existing stock for sale at a certain price in a market.
- 4. Supply Schedule The Supply Schedule shows the different quantities that are offered for sale at various prices. The supply Schedule may reflect the individual schedule of only one producers or the market schedule showing aggregate supply of a group of sellers or producers.
- 5. Hypothetical Supply Schedule and Rice MarketPrice of Rice (Per Sack) Quantity Supplied (50Kilos/Sack) 200.00 250,000 175.00 200,000 150.00 180,000 145.00 160,000 130.00 120,000 120.00 115,000 The table indicates that a seller offer a big quantity of rice supply in the market when the price is high and likewise, sells only a few sack of rice when the price is low
- 6. Supply Curve It is a graphical form or representation of supply schedule.
- 7. Graphical Illustration of Supply Curve
- 8. The law of Supply
- 9. Determinants of Supply Technology Cost of Production Number of Sellers Taxes and Subsides Weather
- 10. Technology Improvement in technology enables more efficient production of goods and services. Thus reducing the production costs and increasing the profits. As a result supply is increased and supply curve is shifted rightwards. Since technology in general rarely deteriorates, therefore it is needless to say that deterioration of technology reduces supply.
- 11. Cost of Production Since most private companies goal is profit maximization. Higher production cost will lower profit, thus hinder supply. Factors affecting production cost are: input prices, wage rate, government regulation and taxes, etc.
- 12. Number of Sellers Greater the number of sellers, greater will be the quantity of a product or service supplied in a market and vice versa. Thus increase in number of sellers will increase supply and shift the supply curve rightwards whereas decrease in number of sellers will decrease the supply and shift the supply curve leftwards. For example, when more firms enter an industry, the number of sellers increases thus increasing the supply.
- 13. Taxes and Subsides Taxes reduces profits, therefore increase in taxes reduce supply whereas decrease in taxes increase supply. Subsidies reduce the burden of production costs on suppliers, thus increasing the profits. Therefore increase in subsidies increase supply and decrease in subsidies decrease supply.
- 14. Weather Production of goods also depends on weather conditions. A business man will produce more sweaters during cold season, more umbrella during rainy seasons and light clothing during summer.