The supply curve is an investigative device to analyse the fortitude of prices and productivity of goods and services. Supply is supposed the quantities of an article of trade or service which a seller is enthusiastic and competent to proffer for sale at assorted prices through a specified period of time. Thus supply is constantly at a price and in relation to a period of time. The higher the price, the larger will be the quantity of an article of trade that will be supplied by a producer and vice versa. Hence the relation amidst price and quantity supplied is direct and positive.
Determinants of Supply
- Price of Commodity – The higher the price of a product, the more will be quantity.
- Price of Other Commodities – A change in the price of another product also affects the supply of that product. For instance, if the price of product X rises, the producer of product Y may produce less of commodity and switch over to the production of product X in order to sell more of it.
- Prices of Factors used in its Production – If the price of any one factor of production used in the manufacture of an article of trade amplifies its cost of manufacture and the price will too amplify. As a consequent, its output will drop and the supply will be diminished. The reverse can also occur in the case of a drop in price of a factor.
- Goals of Producers – If a producer determines at enlarging profit, he will manufacture less products which involves large jeopardy. A manufacturer who determines at enlarging his sales will produce and sell more.
- State of Technology – If new and improved methods of production are used, they are likely to amplify the supply of products.
Law of Supply
The law of supply states that, other things being equal, the quantity supplied changes directly with the price of the product. When prices raises the quantity supplied rises and when the prices drops, the quantity supplied also drops. The phrase ‘other things being equal’ refers to the factors that influence the market supply of a product such as the prices of other products, the price factors of production the state of technology and the goals of producers. All these factors are assumed to be constant. These are the assumptions of the law of supply.
Nevertheless, there are definite exclusions to the law of supply.
- When prices are likely to drop much, sellers will sell further in order to empty their stockpile. This is so in the short-run.
- Over the long run, the supply is prejudiced by changes in costs which are in turn affected by changes in technology.
- Changes in habits, fondness, trends, climate and domestic and overseas hindrances also afflict the supplies of products.
- A hike in the price of a product or service occasionally directs to a drop in supply. This occurs specifically in the case of labour service. When salary hikes to a scale where the labourers sense contended, they will work less than before in order to have more relaxation. They will also have a propensity to teach their kids pretty than send them to work.
Elasticity of Supply
The concept of elasticity is also pertinent to supply. The elasticity of supply is the amount of receptiveness of a variation in supply to a variation in price on the part of sellers. The co-efficient of elasticity of supply is
in amount supplied / Change in price
Amount Supplied Price
= (Δq / q) / (Δp / p) = (Δq / Δp) x (p/q)
Where q refers to the amount supplied and p to the price and Δ represents a variation. The co-efficient of elasticity of supply is always positive.
Factors Influencing Supply Elasticity
- Nature of the Product – If a product is non-durable, its supply is inelastic. This is for the reason that its supply cannot be hiked or lowered by a hike or drop in price. Conversely, the supply of a durable product is elastic since its supply can be changed with the change in its price.
- Cost of production – If the per unit cost of manufacture hikes, at a speedy rate then the hike in price, the supply will be inelastic. Conversely, if the per unit cost of production of a commodity hikes very gradually in relation to a price hike, the supply will be elastic.
- Time Element – The longer the time period, the more elastic will be the supply of a product. The shorter the time period, the more inelastic will be the supply of the product. The supply of a product can be amplified or diminished in the long run than the short run.
- Producers’ Expectations – If producers expect a hike in the price of a product in the future, they will cut down the present supply. As a consequent, the supply will be inelastic. Alternatively, if they are likely to drop they will hike the current supply. Resulting, the supply becomes elastic.
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