Definition of supply: supply is an economic term that refers to the amount of a given product or service that suppliers are willing to offer to consumers at a given price level at a given period.
Q: What Does Economic Supply Mean?
When the price of a product is low, the supply is low. When the price of a product is high, the supply is high. This makes sense because companies are seeking profits in the market place. They are more likely to produce products with a higher price and likelihood of producing profits than not.
Example: Alexandra sells strawberries for $2.50 per kg and the quantity supplied is 30 per kg week. So, Alexandra earns $75 per week from strawberries. However, a sudden draught lowers the quantity supplied of strawberries and Alexandra has to anticipate to demand for strawberries.
In this case, since demand for strawberries cannot be met by the quantity supplied, the price of rise dramatically. Alternatively, Alexandra can sell cranberries for $3.00 per kg. At this price level, and given that cranberries are similar products to strawberries, Alexandra can sell about 40 kg per week, thereby earning $120.
Law of Supply:
The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a good or services increases, the quantity of goods or services that suppliers offer will increase, and vice versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale.
The supply function is now explained with the help of a schedule and a curve.
Market Supply Schedule:
Market Supply Schedule of a Commodity:
In the table above, the produce are able and willing to offer for sale 100 units of a commodity at price of $4. As the price falls, the quantity offered for sale decreases. At price of $1, the quantity offered for sale is only 40 units.
Law of Supply Curve/Diagram:
The market supply data of the commodity x as shown in the supply schedule is now presented graphically.
In the figure price is plotted on the vertical axis OY and quantity supplied on the horizontal axis OX. The four points d, c, b and a show each price quantity combination. The supply curve SS’ slopes upward from left to right indicating that less quantity is offered for sale at lower price and more at higher prices by the sellers not supply curve is usually positively sloped.
Examples of Law of Supply:
The law of supply is based on a moving quantity of materials available to meet a particular need. Supply is the source of economic activity. Supply, or the lack of it, also dictates prices. Cost of scarce supply goods increase in relation to the shortages. Supply can be used to measure demand. Over supply results in lack of customers. An over supply is often a loss, for that reason. Under supply generates a demand in the form of orders, or secondary sales at higher prices.
If ten people want to buy a pen, and there’s only one pen, the sale will be based on the level of demand for the pen. The supply function requires more pens, which generates more production to meet demand.