Meaning of Supply
In general sense, supply denotes the availability of goods or the amount offered for sale. But, it has different meaning in economics. In economics, supply is the total amount of goods that producer wants to sell in certain price during a given period of time. It is related to the willingness and ability to sell the goods in a certain price at a specific time.
According to prof Meyers,- “We may define supply as a schedule of the amounts of goods that would be offered for sale at all possible prices at one instant of time, or during any one period of time, for example, a day, a week and so on, in which the conditions of supply remain the same.”
On the basis of above analysis and definition, supply has the following elements or characteristics.
- Supply is the amount offered for sell at a specific time.
- Willingness and ability (stock of goods) are essential for supply.
- It is related to the individual or the firm that sells the goods.
- It is concerned to the place or market where goods are sold.
- Other factors except the price are assumed to be constant in the analysis of supply.
At a specific time or in short run, other factors affecting supply remain constant. Therefore, supply is determined by the price of commodity. This relationship between price and quantity supplied is expressed by the functional relationship as follows:
f= Functional relationship
Law of Supply
Producers or seller are the suppliers of goods and services. Their works are profit motivated and they aim to maximize profit. Profit of the suppliers is increased when the price of goods is high. So, production and supply of goods are increased in high price of goods.But profit and supply will be low in price. The law or statement which explains the effect of price on quantity supplied is known as the law of supply. It is as follows.
Other things remaining constant, as the price of a commodity rises, its supply increases and as the price falls, its supply decreases. This tendency of supply change due to the effect of price change is known as law of supply. This law establishes the direct (positive) relationship between price and quantity supplied. It means, price and quantity supplied move in the same direction. The law of supply is explained by the following supply schedule and the supply curve.
Table 1.5: Supply schedule
|price of commodity(Rs)||Quantity supplied|
In table 1.5, various prices of the commodity and the quantity supplied in those prices are presented. When price is Rs 4 per unit, quantity supplied is 20 units. When price increases to Rs 6 per unit, supply is 30 units. When price is 8,10 and 12, quantity supplied is 40,50 and 60 units respectively. It shows that quantity supplied increases with the increases in price and vice-versa. It means, there is direct relation between price and quantity supplied. It can be explained by the diagram also.
In the figure, price of goods is presented along y-axis and quantity supplied is 20 units at price Rs 4 per unit. Supply becomes 30 units at price Rs 6 . In the same way, supply is 40, 50 and 60 units at price Rs 8, Rs 10 and Rs 12 respectively.
If the combinations of price and quantity supplied are joined continuously, supply curve SS is obtained. The supply curve is upward slopping from left to right. It shows the positive relationship between price and quantity supplied. It justifies that quantity supplied is increased with the increases in price and vice-versa.
The law of supply has three elements or characteristics:
- This law explains the effects of price on quantity supplied.
- It provides the knowledge about the direction of quantity change by the effect of price change. But it does not shows the quantitative change in supply.
- This law is applicable only if other factors affecting supply remain constant.