lesson 14 Concept of Supply
Lesson objective
At the end of this lesson, you will be able to:
- Define the concept of supply.
- Analyse the law of supply
Brainstorming Question
How do you define the term ‘supply’ in economics?
Key Terms and Concepts
- Supply
- Quantity Supplied
- Law of Supply
- supply schedule
- Supply Function
Supply of a commodity refers to the various quantities of it which producers are willing and able to offer for sale at a particular time at various corresponding prices.
“quantity supplied” describes the number of goods or services that suppliers will produce and sell at a given market price.
law of supply demonstrates the quantities sold at a specific price. But unlike the law of demand, the supply relationship shows an upward slope.
A supply schedule is a tabular presentation of different quantities of a commodity offered for sale at different prices per time period.
A supply function is a mathematical representation of the relationship between price and quantity supplied of a commodity, all other things remaining the same.
Supply
In ordinary language, the term “supply” is often misused and confused with the term “stock.” A commodity’s “stock” is the total volume of a commodity produced during a period minus the quantity already sold. Conversely, supply refers to the quantity that is actually brought to the market. Most of the time, producers do not offer all of their stock for sale on the market. For example, after harvest, a large portion of agricultural products is kept in cold storage and sold at a higher price during the off-season. Similarly, part of an industrial product is usually kept back in stock and offered for sale in the market when it can bring higher prices. Thus, stock is potential supply, and supply may be less than or equal to the stock of a commodity.
In economics, the term supply has a specific meaning, defined as follows: Supply of a commodity refers to the various quantities that producers are willing and able to offer for sale at a particular time at various corresponding prices.
Quantity Supplied
Quantity supplied indicates the various quantities of a commodity that sellers (producers) are willing and able to provide at different prices during a given period. In economics, “quantity supplied” describes the number of goods or services that suppliers will produce and sell at a given market price. The quantity supplied differs from the actual amount of supply as price changes influence how much supply producers actually put on the market. Supply shows the relationship between the quantity supplied and the price of a commodity, while quantity supplied refers to a specific amount of the commodity that a producer is willing to sell at a specific price.
Law of Supply
Like the law of demand, the law of supply demonstrates the quantities sold at a specific price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. According to the law of supply, there is a direct or positive link between a commodity’s price and the quantity delivered.
Supply Schedule
A supply schedule is a tabular presentation of different quantities of a commodity offered for sale at different prices over a given period. It is a chart that shows how much product a supplier will have to produce to meet consumer demand at a specified price based on the supply curve.
| Price (Birr Per kg) | Quantity Supplied (kg/week |
| 10 | 60 |
| 15 | 70 |
| 20 | 80 |
| 25 | 90 |
| 30 | 100 |
The above supply schedule shows the different quantities of a commodity that an individual seller is willing to provide at different prices. At Birr 15 per kg, the seller provides 70 kg per week, while at Birr 30 per kg, the seller provides 100 kg per week.
Supply curve
A supply curve shows the information of a seller’s supply schedule graphically rather than in a tabular form.
Figure 4.3 Individual seller’s supply curve for oranges
Supply Function
A supply function is a mathematical representation of the relationship between price and quantity supplied of a commodity, all other things remaining the same. A typical supply function is given by:
$$Q_S = f(P)$$
where, QS is quantity supplied and P is the price of the commodity.
Market supply
Market supply is the total amount of an item producers are willing and able to sell at different prices, over a given period of time. Market supply is calculated by summing the quantity supplied of the commodity by all sellers at each price horizontally.
| Price per unit | Quantity supplied by seller-1 | Quantity supplied by seller-2 | Quantity supplied by seller-3 | Market supply/ week |
| 5 | 11 | 15 | 8 | 34 |
| 4 | 10.5 | 13 | 7 | 30.5 |
| 3 | 8 | 11.5 | 5.5 | 25 |
| 2 | 6 | 8.5 | 4 | 18.5 |
| 1 | 4 | 6 | 2 | 12 |
The preceding supply schedule shows the various quantities of a commodity that different sellers supply to the market at different prices over the given time period. At Birr 5 per kg, seller-1 delivers 11 kg, seller-2 delivers 15 kg, and seller-3 delivers 8kg. Accordingly, the market supply at Birr 5 per kg is 34 kg. However, at birr 2 per kg, seller-1 delivers 6 kg, seller-2 delivers 8.5 kg, and seller-3 delivers only 4 kg. Thus, the total market supply at Birr 2 per kg is only 18.5 kg.
Figure 4.4: Individual and market supply curves
The preceding market supply curve depicts the horizontal summation of individual supply curves. It indicates the relationship between various quantities of a commodity that sellers are willing to offer for sale at different prices. Market supply is found by horizontally summing individual supplies at the market price.