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What is Supply? and What is supply in economics with examples? these are some of the mostly asked questions from the study of economics. In Macro or Micro economics, supply refers to an economic term that describes the quantity of a product or service suppliers are willing and able to offer consumers at a certain price point over a specified period. This is the meaning of supply in economics.
READ: Types of Managerial Economics
What does Economic Supply mean?
The supply of a product will be limited if its price is high. The supply will be high if the product’s price is high. This is because companies want to make a profit in the marketplace. They are more likely than not to produce products that have a higher price or greater chance of making profits, thats what is supply in economics.
What is meaning of supply in economics?
- Factors of Supply
- Supply factors for a product or service are related to:
- The price of the product/service
- The price of similar goods and services
- The prices for production factors
- The price of inputs
- The number of production units
- Production technology
- Expectations of producers
- Government policies
- Random, natural, or other factors
Suppliers need to anticipate price changes and react quickly to price changes. Some market factors can be difficult to predict. Although the yield of commodities can’t be accurately predicted, supply in economics has a strong impact on prices.
The U.S. will lose its currency value relative to other currencies and American commodities will be cheaper to import from foreign countries. This will stimulate the U.S. economy. Prices respond to increased supply.
Example of what is supply in economics
Alexandra sells strawberries at $2.50 per kilogram and supplies 30kg per week. Alexandra makes $75 per week selling strawberries. Alexandra must anticipate strawberry demand because of a sudden decrease in strawberries available.
As the supply of strawberries is not sufficient to meet demand, strawberries will be more expensive. Alexandra could also sell cranberries at $3.00 per kilogram. Alexandra in expaling what is supply in economics could sell 40kg per week at this price, considering cranberries are very similar to strawberries. This would earn her $120.
The suppliers can increase strawberry production to prepare for any weather conditions that could affect supply. They will immediately respond to increased strawberry demand and any price changes.
The Law of Supply
This economic law explains how suppliers react to changes in market prices. Simply put, suppliers maximize profits when there is a price shift for a product or service. They do this by increasing the supply of the product.
All market factors must be constant. Contrarily, prices that fall tend to shift the supply in economics to the other side until equilibrium is reached.
Types of supply
The short-term supply refers to the fact that a buyer’s ability to purchase goods is limited by the availability of supplies. The products that are available to buyers cannot be purchased by buyers.
The factor of time availability when the demand changes is called long-term supply. This means that the availability of time allows the supplier to adjust to sudden shifts in demand.
The consequential supply is explained by joint supply. Lamb production has an impact on meat and wool supply. If farmers stop farming lambs, the supply of meat and wool will also decrease. The opposite will happen if there is an increase in wool supply.
Market supply is the willingness and ability of suppliers to supply a product on a daily basis. Example: Wheat suppliers A, B and C might be willing to supply 5 kilos of wheat at $1 per kilogram for a total 11 kilos. Meaning of supply in economics relates to suppliers who could increase their supply to 10, 8 and 15 kilos if prices rise to $2.50. The market supply in economics totals 33 kilos.
Composite supply refers to the supply of products with multiple purposes. The mining of crude oil is a perfect example. Producing oil has an impact on the production of petrol, gasoline, kerosene and diesel.
Factors affecting supply
Numerous factors and circumstances can affect the seller’s ability or unwillingness to produce and/or sell a good. These are some of the most common factors:
Good’s price: This is the basic supply relationship between the price and quantity of a good. The Law of Supply states that an increase of price will result in an increase of quantity.
Prices of related goods. To aid in supply analysis, related goods are goods that can be used to
produce the primary product. Spam, for example, is made from pork shoulder and ham. Both come from pigs. Spam would also be considered related to pigs. In this instance, the relationship would either be negative or inverted. The supply curve would shift left if the price of Spam goes up. This is because the cost to produce Spam would have increased.
Another related good could also be one that can be made with existing production factors. Let’s say a company produces leather belts. The firm’s managers discover that leather pouches are more profitable than leather belts. Following meaning of supply in economics on this information, the firm may reduce production of belts or begin producing cell phone pouches.
Supply will also be affected by a change in price for a joint product. Leather and beef products are examples of joint products. A company that has a beef processing plant and a tanning operation and supply in economics would see an increase in steak prices. This would lead to more cattle being processed, which would result in a greater supply of leather.
Conditions of production: This is the most important factor. The supply will increase if there is technological progress in the production of one product. Production conditions may also be affected by other variables. Weather is a key factor in agricultural goods. It can have an impact on the production outputs. Scale can also have an impact on production conditions.
Future market conditions: Sellers’ concerns can directly impact supply. A seller who believes that demand will rise in the near future for his product may increase production immediately to prepare for future price increases. This would cause a shift in the supply curve.
Prices of inputs: These include labor, land, energy, and raw materials. As sellers become less willing to or able sell goods at any price, the price of inputs will increase. A seller might reduce the supply of his product if electricity prices rise. Supply in economics has fixed inputs may affect the price of inputs. The scale of production can also affect how much fixed costs are included in the final price.
Number of suppliers: The horizontal summation all the individual supply curves is called the market supply curve. The market supply curve will shift as more companies enter the industry, which will result in lower prices, thats the meaning of supply in economics.
Regulations and policies of the government: The government can have a significant impact on supply. Government intervention may take many forms, including environmental and human health regulations, hour- and wage laws and taxes, as well as electrical and natural gas rates, zoning, land use and other regulations for what is supply in economics.