Supply
Introduction
Supply is the quantity of a commodity that a producer is willing and able to offer to the customer at a particular price and time.
Law of supply
Other things remaining constant their is a direct relationship between price and quantity. In other words when the price of a commodity increases the supply of the commodity also increases as the producer earns more profit.
Factors affecting supply
Price of the commodity: A producer may offer a larger quantity of a commodity at a higher price as it would give more profit.
Improved technology: With better technology a producer may be able to produce a greater quantity of a commodity at a lower price.
Change in price of inputs: With an increase in price of inputs the prfit margin of the produce would shrink prompting the producer to produce a smaller quantity of the commodity.
Unit tax: With an increase tax the cost of production goes up. As a result the producer supplies lesser quantity of the commodity.
Firm’s objective: At times firms have an objective of maximising sales and are willing to supply a larger quantity of a commodity even at a lower price.
Increase in supply
When the supply of a commodity increases due to factors other than price we call it increase in supply. The reasons for increase in supply can be improvement in technology, fall in the per unit tax or a fall in price of inputs.
Decrease in supply
When the price of a commodity decreases factors other than price it is known as decrease in supply. The reasons for decrease in supply may be use of old technology for production, an increase in the per unit tax or increase in the price of inputs.
Expansion in supply
When the supply of a commodity increases with and increase in its price it is called expansion of supply. The prime cause for expansion of supply is the increase in its price.
Contraction in supply
When the price of a commodity decreases due to a fall in its price it is called contraction of supply. The prime cause of contraction of supply is the price of a commodity.