Table of Contents
What is Supply?
Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices over a specific period of time.
It is important to understand that supply is not just about the producer’s willingness to sell, but also their ability to do so. This means that even if a producer wants to sell a product, they must also have the resources and capacity to bring it to the market.
For instance, if a farmer is able and ready to sell 100 bags of rice at ₦30,000 per bag within a given month, this represents the supply of rice at that price and time.
Supply is always considered with price and period, because changes in either of these factors can affect the quantity of supply.
Supply Schedule
A supply schedule is a table that displays the relationship between the price of a good and the quantity that producers are willing to supply at each price level. It helps to illustrate how supply responds to changes in price.
For example, if the price of a product is ₦100, a producer might be willing to supply 10 units. As the price rises to ₦200, the quantity supplied may increase to 20 units, and so on.
This pattern continues as price increases, showing that producers are more willing to supply greater quantities at higher prices.
The supply schedule is a useful tool for understanding the behavior of suppliers and forms the basis for plotting a supply curve on a graph.
Supply Curve
A supply curve is a graphical representation of the relationship between the price of a good and the quantity supplied. It is drawn with the price on the vertical (Y) axis and the quantity supplied on the horizontal (X) axis.
The curve typically slopes upward from left to right, indicating that as the price increases, producers are willing to supply more of the goods. The points plotted on the graph are usually taken from a supply schedule, and when connected, they form the supply curve.
This curve helps visualise how changes in price influence the amount of goods producers are willing to offer for sale.
Law of Supply
Conversely, the lower the price, the smaller the quantity they are willing to supply. This means that there is a direct relationship between price and quantity supplied.
Producers are motivated to supply more of a product when prices are high because it increases their potential profit.
On the other hand, when prices fall, producers may reduce the quantity they supply, as selling at lower prices may not cover their production costs.
This principle is usually illustrated with an upward-sloping supply curve, showing that as price increases, quantity supplied also increases.
Types of Supply
1. Individual Supply:
Individual supply refers to the quantity of a good or service that a single producer is willing and able to offer for sale, at various prices, during a particular period.
It focuses on the behavior of one seller in the market. For example, a tailor who makes and sells clothes might be willing to supply 10 shirts at ₦5,000 each and 20 shirts at ₦7,000.
This supply is unique to that individual and depends on their production capacity, cost, and motivation.
2. Market Supply:
Market supply is the total quantity of a good or service that all producers in a market are willing and able to sell at different prices over a period of time. It is obtained by adding the individual supplies of all sellers for a particular good.
For instance, if three farmers are each willing to sell 100, 150, and 200 bags of rice at ₦25,000 respectively, the market supply at that price is 450 bags.
Market supply gives a broader picture of how much of a good is available in the entire market.
3. Joint Supply:
Joint supply occurs when two or more products are produced from a single source or production process. The production of one automatically leads to the supply of the other.
A common example is the slaughtering of cattle, which produces both beef and leather. When the supply of beef increases due to more cattle being slaughtered, the supply of leather also increases.
Thus, the supply of one good influences the supply of its joint product.
4. Composite Supply:
Composite supply refers to a situation where a single product can be used for multiple purposes, meaning that several demands are placed on one product.
For example, petroleum can be refined into petrol, diesel, kerosene, and other by-products. When demand increases for one use, it can affect the supply available for other uses.
Producers must decide how to allocate the product to satisfy different uses, which can influence market dynamics.
5. Competitive Supply:
Competitive supply arises when different products compete for the same resources in production. In this case, producing more of one product means producing less of another because of limited resources.
For instance, a farmer who can use the same plot of land to grow either maize or yam faces a competitive supply decision.
If the farmer chooses to grow more maize, the supply of yam decreases, and vice versa. This type of supply reflects opportunity cost in production.
Factors that Affect Supply
1. Price of the Good:
The price of a good is one of the most important factors affecting supply. Generally, when the price of a product increases, producers are more willing and able to supply more of it because it becomes more profitable.
Conversely, when the price decreases, the incentive to produce and sell that good reduces, leading to a fall in supply.
This direct relationship between price and quantity supplied is in line with the law of supply, assuming other factors remain constant.
2. Cost of Production:
The cost of production refers to the expenses incurred in producing a good, such as costs of raw materials, labor, fuel, and machinery.
If production costs rise, it becomes more expensive to produce goods, and suppliers may reduce the quantity they are willing to sell, as profit margins shrink.
On the other hand, if production costs fall, supply tends to increase because producers can make more profit at the same selling price.
3. Technology:
Technological advancement plays a significant role in determining supply. Improved technology enables producers to manufacture goods more efficiently, often at lower costs and higher output levels.
This increase in productivity usually leads to an increase in supply. For example, the use of modern machinery in farming can result in higher crop yields, making more food available in the market.
4. Government Policies:
Government interventions such as taxes, subsidies, and regulations can either encourage or discourage supply. For instance, a high tax on a product increases its production cost, which may lead to a reduction in supply.
On the other hand, if the government provides subsidies (financial support) for certain goods, producers can afford to supply more at lower prices.
Other policies, like import restrictions or environmental laws, can also impact supply either positively or negatively.
5. Number of Producers:
The number of producers in a market directly affects the total market supply. When more producers enter a market, the total supply of a good increases because more firms are producing and offering the product for sale.
However, if some producers leave the market due to low profits or other reasons, the overall supply may decrease as fewer firms are contributing to the output.
6. Weather Conditions:
Weather is especially important in agricultural production. Favourable weather conditions such as adequate rainfall and sunshine lead to higher agricultural output and increased supply.
However, adverse weather conditions such as droughts, floods, or storms can destroy crops and reduce supply drastically.
This factor explains why the supply of agricultural products often fluctuates with the seasons.
7. Expectations of Future Prices:
Producers’ expectations about future prices can influence how much they supply in the present.
If sellers expect that prices will rise in the future, they may hold back some of their current stock to sell later at higher prices, leading to a temporary decrease in current supply.
On the other hand, if they expect prices to fall, they may rush to sell off their goods now, increasing current supply.
8. Availability of Resources:
Supply depends on the availability of the raw materials and inputs required for production.
If essential resources like skilled labor, raw materials, or capital equipment are readily available, producers can manufacture more goods and increase supply.
However, if these inputs are scarce or expensive, it becomes difficult to maintain or increase production, which can limit the amount of goods supplied in the market.
Lesson Summary
- Supply is the amount of goods sellers are ready to sell at various prices.
- Supply schedule shows this information in a table; supply curve shows it on a graph.
- The Law of Supply says price and quantity supplied move in the same direction.
- Types of supply include individual, market, joint, composite, and competitive supply.
- Many factors affect supply, including price, cost, technology, and government policies.
Read Also: The Relevance Of The Study Of Economics To Career Prospects
