Supply is defined as the quantity of a good that producers are willing and able to supply at a specified price and a specified time. Supply must be distinguished from the total stock of a commodity in existence. Supply is only that part of the stock which comes into the market in response to the prevailing price.
Individual supply is what a single supplier would supply to the market at a particular price and a particular time.
Market supply means the quantities of a good that all sellers in the market are willing and able to supply at a specified price and a specified time.
Determinants of Supply:
Price of that good - Higher the price, greater would be the quantity supplied and lower the price, smaller would be the quantity supplied ceteris paribus. The normal supply curve slopes upward from left to right.There is a direct or positive relationship between price and quantity supplied.
Prices of other goods - Goods can be produced with the same resources (or changes in relative prices). If the price of one good rises with prices of other goods constant, factors of production (resources) will be shifted to producing that good whose price has risen.
Prices of factor inputs - If the price of a factor input such as the wage rate rises, the cost of production increases resulting in a decline in the profit margin. Then the supply of goods requiring the use of that factor will decrease. If the price of a factor input used in the production process falls, the cost of production falls, the profit margin of the producer rises and supply will increase.
Technology - Improved technology helps to produce a bigger output and cost per unit
will fall. Supply will increase.
Time - In the short run, supply is relatively stable as certain factor inputs are fixed in supply; in the long run, supply tends to be more flexible as all factor inputs can be changed.
Tax -A higher production tax imposed by government reduces the producer's profit margin and supply decreases. On the other hand, a subsidy given to producers will increase supply.
Government Policy - Restrictions placed on imports will decrease market supply.
Goals of firm - If the goal of the firm is sales maximization (rather than profit maximization), supply will increase.
Weather conditions - In the case of agricultural goods, favorable weather conditions will lead to an increase in supply, while unfavorable weather conditions will lead to a decrease in supply. Good weather leads to a bumper harvest and bad weather to a poor harvest.
Individual supply is what a single supplier would supply to the market at a particular price and a particular time.
Market supply means the quantities of a good that all sellers in the market are willing and able to supply at a specified price and a specified time.
Price of that good - Higher the price, greater would be the quantity supplied and lower the price, smaller would be the quantity supplied ceteris paribus. The normal supply curve slopes upward from left to right.There is a direct or positive relationship between price and quantity supplied.
Prices of other goods - Goods can be produced with the same resources (or changes in relative prices). If the price of one good rises with prices of other goods constant, factors of production (resources) will be shifted to producing that good whose price has risen.
Prices of factor inputs - If the price of a factor input such as the wage rate rises, the cost of production increases resulting in a decline in the profit margin. Then the supply of goods requiring the use of that factor will decrease. If the price of a factor input used in the production process falls, the cost of production falls, the profit margin of the producer rises and supply will increase.
Technology - Improved technology helps to produce a bigger output and cost per unit
will fall. Supply will increase.
Time - In the short run, supply is relatively stable as certain factor inputs are fixed in supply; in the long run, supply tends to be more flexible as all factor inputs can be changed.
Tax -A higher production tax imposed by government reduces the producer's profit margin and supply decreases. On the other hand, a subsidy given to producers will increase supply.
Government Policy - Restrictions placed on imports will decrease market supply.
Goals of firm - If the goal of the firm is sales maximization (rather than profit maximization), supply will increase.
Weather conditions - In the case of agricultural goods, favorable weather conditions will lead to an increase in supply, while unfavorable weather conditions will lead to a decrease in supply. Good weather leads to a bumper harvest and bad weather to a poor harvest.
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