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Supply - The Economics of Supply

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What Supply Is:

Economists have a very precise definition of supply. Economists describe supply as the relationship between the quantity of a good or service consumers will offer for sale and the price charged for that good. More precisely and formally supply can be thought of as "the total quantity of a good or service that is available for purchase at a given price."

What Supply Is Not:

Supply is not simply the number of an item a shopkeeper has on the shelf, such as '5 oranges' or '17 pairs of boots', because supply represents the entire relationship between the quantity available for sale and all possible prices charged for that good. The specific quantity desired to sell of a good at a given price is known as the quantity supplied. Typically a time period is also given when describing quantity supplied.

Supply - Examples of Quantity Supplied:

When the price of an orange is 65 cents the quantity supplied is 300 oranges a week.

If the price of copper falls from $1.75/lb to $1.65/lb, the quantity supplied by a mining company will fall from 45 tons a day to 42 tons a day.

Supply Schedules:

A supply schedule is a table which lists the possible prices for a good and service and the associated quantity supplied. The supply schedule for oranges could look (in part) as follows:

75 cents - 470 oranges a week
70 cents - 400 oranges a week
65 cents - 320 oranges a week
60 cents - 200 oranges a week

Supply Curves:

A supply curve is simply a supply schedule presented in graphical form. The standard presentation of a supply curve has price given on the Y-axis and quantity supplied on the X-axis.

The Law of Supply:

The law of supply states that, ceteribus paribus (latin for 'assuming all else is held constant'), the quantity supplied for a good rises as the price rises. In other words, the quantity demanded and price are positively related. Supply curves are drawn as 'upward sloping' due to this positive relationship between price and quantity supplied. Note: There are theoretical instances where the law of supply might not hold, though these are rarely, if ever, seen in the real world.

Price Elasticity of Supply:

The price elasticity of supply represents how sensitive quantity supplied is to changes in price. Further information is given in the article Price Elasticity of Supply.

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