Economics: Supply: Meaning, Definition of Supply, Stock and Supply

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Meaning

Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers.

Definition

Supply of a commodity is the quantity of the commodity that a seller offers for sale at a given price at a given time.

The definition of supply includes the following three things:

  • The quantity of a commodity offered for sale by a seller.

  • The price of the commodity given in the market at which the seller is willing to sell that quantity of the commodity.

  • The time period during which the seller is willing to sell that quantity of the commodity.

Stock and Supply

  • The total quantity of a commodity available with a seller/firm at a particular point of time is called stock.

  • Supply is that part of stock of the commodity that the seller is ready to sell at some given price during a given time period. So, supply is a flow.

  • Stock is measured at a particular point of time whereas supply is measured over a period of time. Supply is a part of the stock of the Commodity.

Factors Affecting Individual Supply

The most important factors are the following:

Illustration 1 for Factors Affecting Individual Supply

Illustration 1 for Factors Affecting Individual Supply

Price of the Commodity

When a producer produces a commodity, he incurs a lot of expenditure on factors of production and raw materials etc. which we call cost of production. He can recover these costs by selling the product at certain price in the market. Since price is also the average revenue, higher the price higher will be the average revenue and accordingly higher will be total revenue. So, price is a very important determinant of supply.

Technology of Production

An improvement in technology of production reduces the cost of production per unit of the commodity which increases the margin of profit of the firm.

Price of Inputs

If price of any input used in production of a commodity falls, it leads to decrease in cost of the production per unit and as a result supply of the commodity will increase and vice. Versa.

Price of Other Related Goods

Supply of a commodity is also influenced by the price of other related goods. If there are two products in the market like wheat and rice and the price of wheat is higher than the rice than farmer will use his resources for producing wheat instead of rice.

Objective of the Firm

Supply of a commodity is influenced by the priority given to the objective by the firm and readiness to sacrifice the one for the other.

Government Policy

Government policy also influences the supply of a commodity. For example, if the government increases the rate of value added tax or sales tax on a commodity, it will increase the cost of production per unit which will decrease the supply of the commodity and vice. Versa.

Individual Supply Schedule of a Commodity

  • Supply of a commodity by an individual firm is called individual supply. In order to construct an individual supply schedule of a commodity, we need information on quantities supplied at different prices.

  • Let us take an example of a firm X Ltd which sold 8 quintals of sugar in a day at the given price of Rs. 2800 per quintal. Suppose the price increased to Rs.2900 per quintal. It is found that X Ltd supplied 9 quintals sugar in a day at this price. Similarly, when the price increased to Rs.3000 the quantity supplied increased to 10 quintals. Further at prices Rs.3100 and 3200 the quantity supplied increased to 12 and 15 quintals, respectively. This information about the different quantities supplied at different prices is given in the Table below.

Supply of sugar of ‘X’ Ltd

Supply of Sugar of ‘X’ Ltd
Supply of sugar of ‘X’ Ltd

Price

(Rs per quintal)

Quantity supplied of sugar

per day (in quintal)

2800

8

2900

9

3000

10

3100

12

3200

15

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