Supply

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In economics, supply is the amount of something that firms are willing to provide in a market. The law of supply and demand will decide the price at which something will be bought and sold.

Factors affecting supply[change | change source]

There are various factors that can make a seller more or less willing to produce and sell a good. The more common ones are:

  • Price of variable inputs: Variable inputs refers to the factors of production used to produce a good. When the cost of using these factors increases, the overall cost of producing the good increases as the marginal cost of producing the good increases. Firms thus produce lesser for the same amount of resources used and supply becomes lesser.
  • Productivity: When factors of production becomes more productive, it is able to produce a greater output for the same amount of resources used. Productivity improvements include improvements in technology, increased training for labor, better usage of resources, etc.
  • Government policies: When the government intervenes in the market, it can do so by subsidizing or taxing the production of the good. When a subsidy is provided, it lowers the marginal cost of producing the good, thus allowing firms to produce more for the same amount of resources used, thereby increasing supply. When a tax is used, the marginal cost of producing the good increases. Firms now produce lesser for the same amount of resources used and supply becomes lesser.
  • Number and size of firms: When there are more firms in the market, there are more resources being used to produce the good, thus increasing the supply of the good. When a firm gets bigger, the marginal cost of producing the good may decrease due to economies of scale, thus increasing the supply of the good.
  • Supply shocks: When there are natural disasters (such as earthquakes or epidemics), there is a decrease in the factors of production as capital may be destroyed and labor being unable to work. Man-made disasters such as industrial disputes (e.g. strikes) will also cause labor to be unable to work. As there is a decrease in the factors of production, the supply of the good becomes lesser.

There may be other factors that affect the supply of a good, especially since it depends on whether the seller is willing to produce and sell the good.