SUPPLY

Supply is a fundamental economic concept that describes the total amount of a specific good or
service that is available to consumers. Supply can relate to the amount available at a specific
price or the amount available across a range of prices if displayed on a graph. This relates
closely to the demand for a good or service at a specific price; all else being equal, the supply
provided by producers will rise if the price rises because all firms look to maximize profits. One
of the most important factors that affect supply is the good’s price. Generally, if a good’s price
increases, so will the supply. There is often an inverse relationship between the price consumers
are willing to pay and the price manufacturers or retailers are wanting to charge. The conditions
of the production of the item in supply is also significant when a technological advancement
increases the quality of a good being supplied, or if there is a disruptive innovation, such as
when a technological advancement renders a good obsolete or less in demand. Government
regulations can also affect supply; consider environmental laws regarding the extraction of oil
affect the supply of such oil.

Supply Curve

As price (y-axis) increases, more market participants are willing to supply the product as this
increases profit margin and profitability. The slope of the supply curve may be steeper for items
with less price sensitivity or more gradual for items more sensitive to price changes.

Movement along a Supply Curve: When the price of a product changes, the equilibrium point
along the existing supply curve will simply change. For example, imagine a current level of
supply for a good whose price is Rs100. Should that product's price decrease to Rs90, the level
of supply can be found by moving along the existing supply curve down to when the price is
Rs90.

Shift in Supply Curve: When a non-price determinant has an external impact on supply, the
entire supply curve will shift. For example, consider technological innovations that influence
how much of a good can be delivered. Instead of simply being a different point along an
existing curve, the entire supply curve will move, and a new equilibrium point will exist on the
new line.

Factors affecting Supply

 Consumer Demand: As more customers demand a good, companies will focus on

increasing the supply of that good. Though this may increase inventory, this may also be
an indicator that high demand will cause inventory shortages until long-term production
can meet short-term market demand.
 Material Costs and Availability: Manufacturers are often limited by the products used
in the manufacturing process. Whether it is shortages of specific goods or delays in the
delivery process, a company can only make a product if it has the consumable goods to
convert into a final product.
 Technological Innovation: Companies that have invested more heavily in technology
and innovation will likely have greater capabilities. Whether it is shorter machine
downtime, more efficient use of materials, or shorter manufacturing time, the equipment
and machinery used directly relate to how many goods a company can expect to
manufacture and supply to the market in a given period of time.
 Government Policy: Some policies may limit production or impose disincentives that
make a company not want to supply markets with specific goods. Alternatively,
companies may receive tax incentives or subsidies to ramp up production. In either case,
the government directly influences the quantity of product released to the market.
 Natural Factor: Should inclement weather damage crops, the agriculture sector may
have no choice but to undersupply the market. On the other hand, favorable weather may
result in the strongest yields.
 Economic Conditions: As macroeconomic conditions worsen, companies may choose
to slow production, decrease long-term investments, or wait to react to consumer
 demand and make products accordingly. Alternatively, should credit be easily accessible
for cheap, companies may be more likely to build inventory, incur additional expenses,
and risk manufacturing additional goods to experiment in new markets.

Law of Supply And Demand

The price where supply and demand meet is known as the equilibrium price. At that price point,
suppliers produce just enough of a good or service to satisfy demand, and everyone who wants to
purchase the product can do so. In practice, of course, balancing supply and demand is more
complex. As supply and demand fluctuate, the equilibrium price can vary over time.
Furthermore, the law of supply and demand assumes that all other factors that can affect pricing
remain constant. In reality, that's often not the case. For example, fluctuating production costs or
supply chain problems can have a big impact on pricing.

The law of supply and demand predicts four ways that changes in either demand or supply will
drive changes in pricing:

1. Prices fall when supply increases and demand remains constant.

If supply increases without a change in demand, a surplus usually occurs. This can
happen for many reasons, including surges in productivity. To move excess stock,
especially if there's a pending expiration date, suppliers tend to lower prices to try to
boost demand.

2. Prices fall when demand decreases and supply remains constant.

A surplus can also occur when customers want less of a good or service, even without a
change in supply. The effect is the same: lower prices.

3. Prices rise when supply decreases and demand remains constant.

If supply drops, shortages occur. In that situation, customers are often willing to pay
higher prices to get the goods and services they want. Supply constraints can occur for
many reasons, including supply chain problems. If the problem is temporary, prices tend
to return to their baseline once supply is restored.
 4. Prices rise when demand increases and supply remains constant.
A shortage can occur if the demand for a product increases but the supply doesn't — or if
demand increases faster than production can ramp up. When supply eventually catches up
with demand, prices tend to stabilize.

Impact of Supply

Supply is a fundamental concept in economics that refers to the quantity of a good or service that
producers are willing and able to offer for sale at various prices during a given period. It plays a
crucial role in day-to-day life and economics in several ways:

 Price Determination: Supply is one of the two main factors (along with demand) that
determine the price of goods and services in a market. When supply increases, assuming
demand remains constant, prices tend to fall. Conversely, when supply decreases, prices
tend to rise.
 Business Decisions: For businesses, understanding supply is essential for making
decisions about production levels, pricing strategies, and inventory management. They
need to know how much of a product they can produce and sell at different price points to
maximize profits.
 Consumer Choices: Supply influences consumer choices by affecting the availability and
price of goods and services. When supply is high, consumers have more options and can
often find lower prices. When supply is low, consumers may face shortages and higher
prices.
 Employment: The level of supply in an industry can impact employment. When supply is
high and production is increasing, businesses may need to hire more workers to meet
demand. Conversely, when supply is low, businesses may need to cut back on production
and lay off workers.

 Economic Growth: A healthy supply of goods and services is essential for economic
growth. When supply increases, it can lead to higher levels of production, increased
consumption, and overall economic expansion.
 Government Policy: Governments often use supply-side policies to influence economic
outcomes. For example, they may provide subsidies or tax breaks to encourage
businesses to increase production, or they may implement regulations to ensure a stable
and reliable supply of essential goods and services.
 Market Dynamics: Supply is a key factor in market dynamics, influencing competition,
innovation, and market structure. When supply is high, competition among producers
increases, leading to lower prices and greater innovation. Conversely, when supply is
low, producers may have more market power, leading to higher prices and less
innovation.