What is the Law of Supply – Difference between supply and quantity supplied
Supply may be defined as the quantity of a good or service which a producer is willing and able to offer for sale at a particular period of time and at a given price. Supply does not mean the total
Law of supply
The law of supply states that, the higher the price of a commodity, (ceteris paribus) all other things equal, the higher the quantity supplied. Also the lower the price the lower the qua\ntity supplied.
This law means that sellers will only be motivated to offer more of their good or service for sale with increase in the price of that commodity
The Law of supply depicts the producer behavior at the time of changes in the prices of goods and services. When the price of a good rises, the supplier increases the supply in order to earn a profit because of higher prices.
The quantity of an item or service that a producer is willing to offer at each price is what economists refer to when they talk about supply. The amount charged by the manufacturer for each unit of an item or service is known as the price. A price rise nearly always results in more of that item or service being supplied, whereas a price drop usually results in less of it being supplied.
Factors Affecting Supply
- Changes in the prices of inputs
- Changes in the prices of substitute goods and services
- Climatic conditions
- Future price expectations
- Government policies
- Changes in Taxation and subsidies
- Changes in the number of producers in a market
- Technological change
Changes in the prices of inputs: – If the price of raw materials, electrical power, fuel, rents, wages and salaries, interest rates increases or decreases it will cause the supply of the product to decrease or increase as the case may be.
Changes in the prices of substitute goods and services: – an increase in the prices of good or service relative to its substitute will shift producer’s attention to increasing the production of such a good.
Climatic conditions: – changes in the weather condition can affect the supply of agricultural products. Good weather like good rainfall will surely increase the supply of farmers’ output, and on the other way, bad weather such as excessive flood will reduce the output of the farmers.
Future price expectations: – when the supplier has the expectation about the future behaviour of the prices of some goods, this may affect supply. For example if producers expect the price of beans to increase, they will change from producing maize and produce beans. As a result the supply of beans will increase while that of maize will fall.
Government policies: – the Federal Government of Nigeria has been encouraging the production of cassava in her bid to raise its status as a significant export crop. When government policies discourage the importation of certain goods it may encourage local production of such products and this can translate to enhanced supply.
Changes in taxation and subsidies: – increase in taxes paid by producers discourages supply in that the imposition of more taxes adds more cost to producers. In another way, the granting of subsidies will reduce cost of production and increase the supply.
Changes in the number of producers: – the more the sellers in a market the more the supply of goods in that market. Markets with a larger number of sellers are more competitive and all the competitors push their products into the market continually.
Technological change: – the current state of technology defines the production and product distribution capacity in a market as well as their costs. Improvement in technology often implies higher productivity, greater marketing efficiency and lower costs.
Supply schedule and supply curve
- A supply schedule is a table that shows the quantity supplied at each price.
- A supply curve is a graph that shows the quantity supplied at each price. Sometimes the supply curve is called a supply schedule because it is a graphical representation of the supply schedule.