What is Supply in Economics?/What are the Factors Effecting Supply?/Supply Function./ infotech9213.

Definition of Supply:



It refers to a different quantity of a commodity that producer is ready to sell at different possible prices.
In other words, Supply refers to total quantity of goods and services that firms are willing to produce at a certain price and certain time.

Quantity Supply:  

Quantity supply refers to a specifics quantity of a commodity that producer is ready to sell at a specific price.

Factors effecting Supply

            Or

Supply Function:- 

It shows functional relationship between supply of a commodity and its "various determinants". 
          I.e. Sx = f( Px, Pr, Nf Gf, Pf, T, Ep, Gp)

1) Price of Own Commodity (Px):

Keeping other factors as a constant, when own prices increases then, Quantity supply increases and when own price decreases then quantity supply decreases. I.e. There is a positive relationship between price and quantity supply.

2) Price of Related Goods:-

Supply of a commodity also depends on the price of the related goods. There are two types of related goods.
  1. Substitutes Goods:- These are those goods which can produce in place of each other. If price of one increases then supply of other  decreases. and vise-versa. 
  2. Complementary Goods:- These are those goods which can produce together. If the price of one increases then supply of other increases and vise-versa.
Consider a firm selling tea. if price of coffee rises in the market, the firm will be selling to less tea at its existing price. The same quantity of tea will be sold only at a higher price.

3) Goals of firms (Gf):-

Supply of a commodity also depends on the goals of firms. If firm goals is to "maximize profit" then they will supply more when price increases. on the other hand if firm goal is to "maximize sales" then they will supply more at a current price.

4) Number of the firms (Nf):-

Supply of a commodity also depends on number of the firms in the market. When number of firms increases in the market then total production of that commodity increases. therefore supply increases and vise-versa. 


5) Price of Factor/ Inputs (Pf):-

Supply of a commodity depends on price of inputs. If price of inputs increases then cost of production increases which reduces profit therefore, supply decreases and vise-versa. 

6) Technology (T):-

Supply of a commodity also depends on technology which is used in the process of production. If there is technological improvement then it  reduces cost of the  production. which increases profit of the firm. therefore supply increases. 

7) Expectation prices (Ep):- 

Supply of a commodity also depends on expectation price. If producer expect that price will increase in future then they will reduce supply at a current price. and if price will decrease in future then they will increase the supply at a current price.

8) Government Policy (Gp):-

Government policy also impact supply of a commodity. Govt. policy includes two types of policy.
  1. Tax Policy
  2. Subsidy policy
1) Tax Policy:- If government increase tax rate then, It increases the cost of production which reduces the firm profit. therefore supply decreases and vise-versa.

2) Subsidy Policy:- If government increases the subsidy on production then, it reduces the cost of production which increases firm profit. therefore supply increases and vise-versa.

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