Supply (economics)

In economics, supply is the amount of a resource that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or to an individual.

Supply can be in produced goods, labour time, raw materials, or any other scarce or valuable object.

In the goods market, supply is the amount of a product per unit of time that producers are willing to sell at various given prices when all other factors are held constant.

In the labor market, the supply of labor is the amount of time per week, month, or year that individuals are willing to spend working, as a function of the wage rate.

In the economic and financial field, the money supply is the amount of highly liquid assets available in the money market, which is either determined or influenced by a country's monetary authority.

This can vary based on which type of money supply one is discussing.

[1] Some of the more important factors affecting supply are the good's own price, the prices of related goods, production costs, technology, the production function, and expectations of sellers.

Innumerable factors and circumstances could affect a seller's willingness or ability to produce and sell a good.

All facts and circumstances that are relevant to a seller's willingness or ability to produce and sell goods can affect supply.

Agricultural products / Perishable goods: Due to their nature of having a short shelf life, immediately after harvest they are offered in the market for sale in large quantities during which prices are usually low.

Supply of labour in the market: The senior management/executive positions have high wages but work a few hours as compared to staff members who earn middle wage levels but work for the longest hours.

In so doing, the following notational conventions are employed: There are I produced goods, each defining a single industry, and J factors.

The indices i = 1,…, I and J = 1,…, J run, respectively, over produced goods (industries) and factors.

The semicolon means that the variables to the right are held constant when quantity supplied is plotted against the good's own price.

The supply equation is the explicit mathematical expression of the functional relationship.

is the repository of all non-specified factors that affect supply for the product.

is positive following the general rule that price and quantity supplied are directly related.

[11] By convention in the context of supply and demand graphs, economists graph the dependent variable (quantity) on the horizontal axis and the independent variable (price) on the vertical axis.

The portion of the SRMC below the shutdown point is not part of the supply curve because the firm is not producing any output.

The Law of Diminishing Marginal Returns (LDMR) shapes the SRMC curve.

The LDMR states that as production increases eventually a point (the point of diminishing marginal returns) will be reached after which additional units of output resulting from fixed increments of the labor input will be successively smaller.

That is, beyond the point of diminishing marginal returns the marginal product of labor will continually decrease and hence a continually higher selling price would be necessary to induce the firm to produce more and more output.

[16] Some heterodox economists, such as Steve Keen and Dirk Ehnts, dispute this theory of the supply curve, arguing that the supply curve for mass produced goods is often downward-sloping: as production increases, unit prices go down, and conversely, if demand is very low, unit prices go up.

For example, if the PES for a good is 0.67 a 1% rise in price will induce a two-thirds increase in quantity supplied.

[citation needed] An example would be the change in the supply of cookies caused by a one percent increase in the price of sugar.

[19] However, all points on the supply curve will have a coefficient of elasticity greater than one.

[21] Perfect competition is the only market structure for which a supply function can be derived.

In a perfectly competitive market the price is given by the marketplace from the point of view of the supplier; a manager of a competitive firm can state what quantity of goods will be supplied for any price by simply referring to the firm's marginal cost curve.

A monopolist cannot replicate this process because price is not imposed by the marketplace and hence is not an independent variable from the point of view of the firm; instead, the firm simultaneously chooses both the price and the quantity subject to the stipulation that together they form a point on the customers' demand curve.

[22] There is no single function that relates price to quantity supplied.