Supply in Economics: Definition, meaning, and example

Supply in economics refers to the quantity of a good that is offered for sale on the market at a given price and period.

In other words, supply can be explained as a seller’s willingness to sell a certain number of a product at a specific price within a certain window of time. Here, it is important to keep in mind that supply is determined by a supplier’s willingness, whereas demand is determined by a buyer.

supply curve small

Types of Supply

  • Market Supply
  • Short-term Supply
  • Long-term Supply
  • Joint Supply

Factors affecting Supply

The following are factors affecting the supply for a given product or service:

  1. Price of a product
  2. Cost of production
  3. Natural conditions
  4. Transportation conditions
  5. Taxation policies
  6. Production techniques
  7. Factor prices and their availability
  8. Price of related goods
  9. Industry structure

Price of a product

The price of a product is one of the main factors affecting supply. While other parameters remain constant, a product’s supply increases as its price goes up and vice versa.

Cost of production

It is the expense incurred during the production of commodities that will be sold to consumers. The relationship between supply and cost of manufacturing is inverse.

Natural conditions

The availability of some things is directly impacted by the weather. For instance, when the monsoon arrives on schedule, the supply of agricultural goods increases.

Transportation conditions

An increase in the supply of commodities is the outcome of better transportation infrastructure. The supply of goods is always constrained by transportation. This is because inadequate transportation facilities cause delays in the delivery of products.

Taxation policies

Tax laws adopted by the government have a regulatory effect on supply. The supply will decline if taxes on items are levied at high rates. This is due to the fact that high tax rates raise overall production costs, making it challenging for suppliers to provide goods on the market.

Production techniques

The type of production techniques utilised affects the supply of commodities as well. Low output from outdated methods further reduces the availability of commodities.

Factor prices and their availability

The factors of production, including labour, raw materials, machinery, and equipment, are necessary for the manufacture of goods.

Price of related goods

Prices of alternatives and complimentary goods also have a significant impact on how much of a product is supplied.

Industry structure

The structure of the industry in which a firm operates affects the supply of goods as well. If there is an industrial monopoly, the producer may limit the supply of his or her products in an effort to drive up prices and boost profits.

Example

Let’s use an illustration to better comprehend the idea of supply.

For instance, a vendor in the market sells a good for 100 per unit. It cannot be regarded as supply in this instance because only the commodity and price are stated.

However, for the following six months, another vendor will be offering the same product in the market for 110 per piece. It is supply in this instance because the commodity, price, and time are all mentioned.