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Supply



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In economics, supply is the amount of something that companies are willing to provide in a market. The law of supply and demand will decide the price at which something will be bought and sold.

Description

According to C.R. McConnell and S.L.Brue, a supply is a scale showing the amount of a good or service that sellers offer for sale in the market at different prices for a while

The volume of supply (volume of output) is the number of goods that a commodity producer (enterprise, firm) is ready to offer at a certain price for a certain period, all other things being equal.

Amount of supply is the amount of a product or service that is on sale at a certain price at a certain time.

It is possible to consider both an individual supply (the offer of a specific seller) and the total value of the supply (the offer of all sellers present on the market). In economics, it is mainly the total value of the supply for a product or service that is studied.

Supply law

The law of supply is a direct relationship between the price and the value of the supply of goods or services during a certain period.

The increase in prices leads to additional profit, allowing the manufacturer to expand production, attracting new manufacturers to the market.

The manufacturer's main task is to solve the problem — how much product to make at a given price. There are 2 general ideas:[1]

  • the higher the price, the higher the offer;
  • the lower the price, the lower the offer.

Factors affecting supply

Various factors can make a seller more or less willing to produce and sell a good.[2] The more common ones are:

  • Price of variable inputs: Variable inputs refers to the factors of production used to produce a good.[3] When the cost of using these factors increases, the overall cost of producing the good increases as the marginal cost of producing the good increases. Firms thus produce less for the same amount of resources used and supply becomes lesser.
  • Productivity: When factors of production become more productive, they can produce a greater output for the same amount of resources used. Productivity improvements include improvements in technology, increased training for labor, better usage of resources, etc.[4]
  • Government policies: When the government intervenes in the market, it can do so by subsidizing or taxing the production of the good. When a subsidy is provided, it lowers the marginal cost of producing the good, thus allowing firms to produce more for the same amount of resources used, thereby increasing supply. When a tax is used, the marginal cost of producing the good increases. Firms now produce lesser for the same amount of resources used and supply becomes lesser.
  • Number and size of firms: When there are more firms in the market, more resources are being used to produce the good, thus increasing the supply of the good. When a firm gets bigger, the marginal cost of producing the good may decrease due to economies of scale, thus increasing the supply of the good.
  • Supply shocks: When there are natural disasters (such as earthquakes or epidemics), there is a decrease in the factors of production as capital may be destroyed and labor being unable to work. Man-made disasters such as industrial disputes (e.g. strikes) will also cause labor to be unable to work. As there is a decrease in the factors of production, the supply of the good becomes lesser.[5][6]

There may be other factors that affect the supply of a good, especially since it depends on whether the seller is willing to produce and sell the good.

References

  1. "Greg Mankiw" (in en). Wikipedia. 2021-03-02. https://en.wikipedia.org/w/index.php?title=Greg_Mankiw&oldid=1009880203. 
  2. Melvin & Boyes, Microeconomics 5th ed. (Houghton Mifflin 2002). 
  3. Ayers & Collins, Microeconomics (Pearson 2003) at 66.. 
  4. Rosen, Harvey (2005). Public Finance, p. 545. McGraw-Hill/Irwin, New York.. 
  5. Goodwin, N, Nelson, J; Ackerman, F & Weissskopf, T: Microeconomics in Context 2d ed. Page 83 Sharpe 2009. 
  6. Goodwin, Nelson, Ackerman, & Weissskopf, Microeconomics in Context 2d ed. (Sharpe 2009) at 83..