Edited By Nna Rejoice and Toluwalase Solanke
Table of Contents
What is Supply?
Supply is a fundamental economic concept that describes the quantity of a good or service that producers are willing to offer to buyers in the marketplace.
1. Individual Supply
Individual supply refers to the quantity of a specific product or service that a single producer or firm is willing and able to offer for sale at varying prices over a given period of time.
For example, if one bakery can produce 200 loaves of bread per day for $1 per loaf, that figure represents the individual supply of that bakery.
This concept is the foundation of market supply, as it focuses on the behaviour of one seller. Factors that affect individual supply include the firm’s production costs, technology, and its specific profit goals.
When studying individual supply, economists assume that other factors like input prices and technology remain constant (ceteris paribus).
2. Market Supply
Market supply is the total quantity of a product or service that all producers in a market are willing and able to sell at different prices over a specific time period.
It is obtained by summing all individual supply curves in the market. For example, if there are 100 bakeries in a city, and each supplies 200 loaves at $1, the market supply is 20,000 loaves at that price.
Market supply follows the law of supply most of the time; as price rises, market supply increases because more firms enter the market and existing firms expand production. This concept is crucial for determining equilibrium price and quantity in the general market.
3. Joint Supply
Joint supply occurs when the production of one good automatically results in the production of another good or other goods, meaning they are produced together from the same raw material or process.
A classic example is crude oil refining: when a refinery processes crude oil, it simultaneously produces petrol, diesel, kerosene, bitumen, and other petrochemicals.
If the price of petrol rises, refineries will increase crude oil processing, leading to an increased supply of diesel and kerosene as well, even if their prices haven’t changed.
Other examples include the production of beef and leather (from cattle) or cotton and cottonseed oil. In joint supply, an increase in supply of one product inevitably increases the supply of its co-products.
4. Composite Supply
Composite supply refers to a situation where a single good or resource can be used to supply two or more different markets or satisfy different wants.
Unlike joint supply (different goods from one process), composite supply involves the same good being channelled to multiple uses.
For example, milk can be supplied to households for drinking, to dairies for cheese production, to factories for ice cream, or to cafés for tea and coffee.
If the demand for cheese rises, more milk will be diverted to cheese-making, reducing the milk available for drinking, which may raise the price of drinking milk.
Other examples include land (used for farming, housing, or industry) and electricity (used by households, industries, and offices). The main feature is that the total supply of the good is limited, so different uses compete for it.
5. Short-Run Supply
Short-run supply is the quantity of a good that a firm or industry is willing to produce and sell within a period where at least one factor of production is fixed (e.g., machinery, factory size, land).
In the short run, a firm cannot easily expand its production capacity; it can only increase output by using more variable factors like labour and raw materials.
Because of these fixed constraints, short-run supply is usually inelastic – a large price increase leads to only a small increase in quantity supplied.
For example, a garment factory with 50 sewing machines cannot suddenly double output even if prices double, because it cannot instantly buy more machines.
The short-run supply curve is typically steeper (less responsive) than the long-run supply curve.
6. Long-Run Supply
Long-run supply refers to the quantity supplied when all factors of production are variable, meaning a firm has enough time to adjust its entire production capacity, including building new factories, installing more machinery, hiring more managers, or even leaving the industry entirely.
In the long run, there are no fixed costs, and firms can enter or exit the market freely. Due to this, long-run supply is generally more elastic than short-run supply because producers can fully respond to price changes.
For example, if the price of smartphones rises sharply, over several years, new factories can be built, new brands can enter the market, and existing firms can expand production substantially.
In given cases, the long-run supply curve may be perfectly elastic (horizontal) in constant-cost industries, meaning price remains stable even as output expands.
Summary
Types of Supply include: Individual, Market, Joint (together), Composite (same good, different sources), Short-run, and Long-run supply.
Read also: Understanding the Basic Concepts of Demand and Supply
