Supply
Supply refers to the total amount of a specific good or service that is available to consumers at a given price and time. It is a fundamental concept in economics and business that directly affects market dynamics, pricing, and availability.
Determinants of Supply – Several factors influence supply, including:
- Production Costs (raw materials, labor, energy)
- Technology (advancements that improve efficiency)
- Government Policies (taxes, subsidies, regulations)
- Market Competition (number of suppliers in the industry)
- Availability of Resources (scarcity or abundance of inputs)
- Future Expectations (anticipated changes in demand or costs)
The Law of Supply and the Supply Curve
The Law of Supply is a fundamental principle in economics that states:
- As the price of a good or service increases, the quantity supplied also increases.
- As the price decreases, the quantity supplied decreases.
This happens because higher prices make production more profitable, encouraging businesses to produce and sell more. Conversely, when prices drop, suppliers may reduce production because it becomes less profitable.
Supply, Demand, and Market Equilibrium
We begin our study of microeconomics by looking at a market with many buyers and sellers, i.e. a market where there is a large amount of competition. We will study such a market in more depth in Perfect Competition, as well as other market types, but starting here makes it easy to get a feel for how the subject works.