Supply

Supply

DEFINITION:-

Supply is the willingness and ability to sell a good or service. It is not the same thing as the existing stock’ or amount available’. For example, the supply of housing in a town consists of the number 9f houses, bungalows and flats, etc. which are up for sale and not the total number of houses, bungalows and flats, etc. in the town. In the spring the supply of housing tends to increase as more properties come onto the market.

THE SUPPLY CURVE:-

In most cases the more is supplied the higher the price. So supply curves slope upwards from left to right. Figure I 0. I shows a supply curve based on the supply schedule in Table 10. I.

MOVEMENTS ALONG A SUPPLY CURVE:-

Movements along the supply curve are referred to as extensions and contractions or as changes in the quantity supplied. Figure 10.2 shows an extension in supply. A rise in price from P to P causes an increase in the quantity supplied from Q to QL To supply larger quantities firms need higher prices in order to cover their higher costs.

Figure 0.3 shows a contraction in supply .A fall in price from P to P’ causes a decrease in the quantity supplied from Q to Q’.

CHANGES IN SUPPLY:-

An increase in supply means that more is supplied at each and every price. A decrease in supply means that less is supplied at each and every price. Figure 0.4 illustrates an increase in supply from 55 to 5151 This leads to an increase in the quantity supplied at any given price. For example, at the price P suppliers are now prepared to offer quantity Q’ whereas under the original supply conditions, at this price, they were only prepared to supply quantity Q. Similarly at price P1 the quantity supplied has increased from Q2 to Q3.

Figure I 0.5 illustrates a decrease in supply. The supply curve shifts to the left from 55 to S1SLThe effect will be to reduce the quantities supplied at all prices.

CAUSES OF CHANGES IN SUPPLY:-

A shift in the supply curve indicates that there has been a change in the conditions governing supply. For example, if producers are prepared to supply greater quantities at given prices, shown by a movement of the supply curve to the right, it may indicate that they have experienced reductions in their labor costs, material costs or capital costs. Among the possible causes of changes in supply are:

WEATHER:-

The supply of agricultural products is seriously affected by variations in weather conditions. A bad harvest means that the supply curve moves to the left; a bumper harvest is represented by a shift of the supply curve to the right.

DISEASE:-

The output of agricultural products can also be affected by disease affecting crops and disease and illness affecting livestock.

TECHNOLOGICAL PROGRESS:-

Technological progress is a term which covers improvements in the performance of capital goods and labor in the quality of raw materials, in organization and management, in factory and office layouts, in communications, in methods of production, and so on. it is the main source of improvements in productivity and these increases in output per hour will move the supply curve to the right, because, if other things remain unchanged, average costs of production will fall.

CHANGES IN THE PRICES OF FACTORS OF PRODUCTION:-

An important determinant of changes in supply is changes in the prices of factors of production. In creases in wages, the prices of raw materials, fuel and power interest rates, rent and other factors prices will cause supply to decrease, in less offset by a rise in the productivity of the factors of production. For example, if wage rates rise by 10% but labor productivity also increases by 10%, then labor costs per unit have not changed.

CHANGES IN THE PRICES OF OTHER COMMODITIES:-

Changes in the prices of other goods and services may affect the supply of a product whose price is not changing. If, because of increases in demand, the prices of other goods and services increase, the production of these goods and services will become more profitable,