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The Concept of Supply

By the term supply, we simply mean the amount or quantity of good that the supplier is ready to provide for the purpose of sale at given time and definite price.

Fig. Supply Curve

Determinants of Supply

Law of Supply

The Law of supply states that a variation in the price of a good results in change in the supply of that particular good. There prevails a direct association between supply and price which implies when there is an increase in the price of a good, the quantity supplied of it also increments. While decrease in the price of a commodity results to decrease in the quantity supplied of it.

The table below highlights how the law of supply operates:

Movement in Supply curve

• Extension in supply

When more units of a commodity are supplied at a higher price i.e. higher the price the higher would be the quantity supplied of a commodity.

• Contraction in supply

When less units of a commodity are supplied at a lower price i.e. lower the price the lower would be the quantity supplied of a commodity.

In the graph a shift in supply from points a to c represents contraction in supply.

Shift in Supply Curve

• Increase in supply

When more units of a commodity are supplied at the same price or the same units are supplied at a lower price is defined as an increase in supply. With an increase in supply, the supply curve gets shifted to the right.

• Decrease in supply

It means the same units of a commodity are supplied at a higher price or at the same price lesser units of the commodity are supplied.

In the graph below, a shift in the curve from S1 to S2 represents a decrease in supply.