The Concept of SUPPLY

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.

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.

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.

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

Supply Curve• It is a graphical form or representation

of supply schedule.

Graphical Illustration of Supply Curve

The law of Supply

Determinants of Supply

• Technology

• Cost of Production

• Number of Sellers

• Taxes and Subsides

• Weather

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.

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.

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.

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.

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.