Supply

Supply is a fundamental concept in economics and business, which describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a supply curve.

Overview

The law of supply demonstrates the quantities that will be sold at a certain price. But unlike the demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.

A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). So, at point A, the quantity supplied will be Q1 and the price will be P1, and so on.

Determinants of supply

The main factors that influence the supply of a product or service are:

• Production cost: If the cost of production is high, the supply will be low. Conversely, if the production cost is low, the supply will be high.
• Technology: Advances in technology can increase the supply as they make it cheaper and faster to produce a good or service.
• Price of related goods: If the price of a related good increases, the supply of the current good will decrease as producers will shift their production to the related good.
• Number of suppliers: The more suppliers there are, the higher the supply of the product.

Supply schedule

A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. Under the assumption of perfect competition, supply is determined by marginal cost. That is, firms will produce additional output while the cost of producing an extra unit of output is less than the price they would receive.

Supply curve

A supply curve is a graph that represents the relationship between the price of a good and the quantity supplied. The supply curve is upward sloping, indicating that as the price of a good increases, the quantity supplied increases.

Elasticity of supply

The elasticity of supply is a measure of the responsiveness of the quantity supplied to a change in price. It is calculated as the ratio of the percentage change in quantity supplied to the percentage change in price.

See also

• Demand
• Economics
• Microeconomics
• Macroeconomics
• Market
• Supply and demand