Meaning of Supply
The supply of a commodity is the quantity of the commodity which producers desire to sell to consumers. Thus, it is the desired flow. It indicates how much firms are willing to sell per period of time and not how much they actually sell.
Difference between supply and stock
| Supply | Stock |
|---|---|
| refers to the quantity of a commodity that is actually brought into the market for sale. | Stock means the total volume of the commodity which can be brought into the market for sale. |
| It indicates only the actual sale incurred in the market and is expressed inflow of goods per time period. | It indicates potential supply in the market. It is not expressed inflow of goods per time period. |
Types
- Market period : The supply of a commodity cannot be changed at all because of lack of time if price has increased.
- Short period : The supply of a commodity can be increased only by using more variable factors such as skilled labourers and raw materials. The plant size cannot be changed during the short period.
- Long period : The supply of a commodity can be increased by increasing both plant size and variable factors of production
Determinants
- Price of the product: When there is an increase in the price of the product and if it is more than the marginal cost of production, then it enables the firm to earn more profit by selling at a higher price. Hence, there is an increase in the supply of the product.
- Prices of the factors of production: Given the other factors, if the prices of the factors of production increase, then there is decline in the profit of the firm. Hence, the firm would reduce the quantity of it at the current price level.
- Technological condition: Technological improvement in production enables the firm to increase the supply at the current price level.
- Price of other commodities: When the prices of other commodities increase, the producer starts producing those commodities to make more profit. Hence, the supply of the existing commodity will fall.
- Price of related commodities: If the price of a commodity remains constant and the price of its substitute rises, then producers would produce substitute goods to make more profit. Hence, the supply of the existing commodity will fall.
- Taxes: When the government imposes heavy taxes on the production of a particular commodity, the cost of production of that good increases and the price will remain constant. This results in reduction in profits. In such a situation, the producer will use the resources to produce those commodities on which the government has levied less tax. Therefore, the supply of that particular commodity decreases.
Law of it ~ Read here
The elasticity of it~ Read here
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