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quality verified Quality Verified On This Page Featured Experts What Is Supply?Supply in economics is defined as the total amount of a given product or service a supplier offers to consumers at a given period and a given price level. It is usually determined by market movement. For instance, a higher demand may push a supplier to increase supply. Loading... Understanding Supply in EconomicsIdeally, supply and demand would be equal. Assuming all factors are constant, under the law of supply, the demand for more units of a product gives the supplier a positive indication to increase their supplies. In turn, this could lead to higher prices. Actual patterns may vary across products and services. Several factors affect the supply and demand pattern, including changes in manufacturing costs, consumer preferences, government subsidies, and extreme weather. Talking about supply in economics requires you to have an understanding of the concept of demand as well. Demand represents the desire or willingness of consumers to buy a certain product or service. These two components affect each other. They are equally important for the economy as they play a huge role in determining prices, amount consumed and the quantity to produce. Visualizing SupplyThe supply and demand pattern can be characterized by curves. Basically, you have to examine the maximum number consumers would potentially buy at various price levels. This will get you the demand curve. The vertical axis represents the price and the horizontal axis is based on quantity. The demand curve is typically downward-sloping. The supply curve reflects the number of products supplied at various price levels. Suppliers can decide whether to increase or decrease supply based on how much they expect to charge for the product. The supply curve is often upward-sloping. At one point, the two curves intersect. That is when the supply and demand are equal, which means prices are at equilibrium. There is no supply excess or shortage. Therefore, there is no need to increase or decrease product prices. Let's take cereal boxes as examples. The equilibrium price is $4, where the quantity supplied and the quantity demanded are equal at a quantity of 25. At equilibrium, there is no pressure for decreases and increases in the price. It means that the number of items the consumers want to purchase is the same as the number of items the seller is selling. If the price is lower than the equilibrium price of $4, the quantity demanded is higher and the quantity supplied is lower. When the demand is high, sellers have pressure to raise the price because there is a limited supply and they want to maximize their profits. Now, if the price is higher than the equilibrium price, the quantity supplied is higher and the quantity demanded is lower. When supply is high, sellers have pressure to decrease their prices because demand is low. Examples of SupplySupply is more than just an economic concept. In fact, it has real-world effects across the globe and across socio-economic spectrums. Below are some events showcasing the impact of supply. Global Semiconductor Chip ShortageOil Price DropConcept: Oversupply The world saw a drop in petroleum prices in 2014. It started in mid-June and continued through the end of January 2015. From $107.95 per barrel on June 20, 2014, prices saw a 59.2% drop and plunged to $44.08 per barrel on Jan. 28, 2015. Because of this, the price of petroleum imports into the U.S. also dropped significantly. Based on the study conducted by the Bureau of Labor Statistics, the cause for the decline in prices was an oversupply of petroleum. Supply has increased worldwide. Additionally, there was lower demand starting in May 2014. Amazon’s Supply ChainConcept: Supply Chain Supply chain management is an important part of running a business. Amazon is a great example of this. Compared to other delivery services companies, Amazon has a more complicated process. However, it helps simplify the customer experience. For instance, packages directly fulfilled by Amazon are sorted in fulfillment centers. Amazon uses predictive modeling wherein they stock items in an area based on demand by consumers. For example, a fulfillment center in the Midwest would ship to someone in Missouri, and another fulfillment center located in Reno would ship to someone in San Francisco. A state could have multiple fulfillment centers. They allow for fast delivery services for consumers. In addition, depending on the type and size of items and delivery service, packages may go directly to a third-party service provider who will deliver to the final destination. Other items are forwarded to regional sortation centers before being delivered. Economic Concepts Related to SupplyThere are various concepts related to supply. Knowing what they are can help you better understand what supply is and its importance in the economy.
Elasticity can be calculated as: 5 Types of SupplySupply refers to different things depending on the market, consumers and the situation. Here are some of the most common types of supply you may encounter: 1 Short-Term SupplyThis type of supply refers to the ability of a consumer to buy a product based only on its availability. That means that consumers cannot buy more than the number of products a seller can offer at a given period. 2 Long-Term SupplyThis type of supply focuses on availability of time. Long-term supplies are those that a supplier can easily adjust when there is a shift on the demand. That is because there is sufficient time to meet market demand. That means the supplier can either increase or decrease production depending on consumer actions and market requirements. 3 Market SupplyMarket supply is also known as day-to-day supply or daily supply. It refers to the ability of suppliers to provide the products on a daily basis. Examples of this are fish, wheat, milk and vegetables, among others. This type of supply is determined by the availability of goods and not on demand. 4 Joint SupplyThere are products produced or supplied jointly. It happens when there is a main product and by-product, which is also known as a consequential supply. A good example of this is lamb production. An increase in farming lambs will increase the supply of meat and wool. 5 Composite SupplyComposite supply refers to the type of supply made up of two or more products or services bundled together. They cannot be supplied separately, so they are being sold as a combination. These can be products, services or a combination of the two. Supply FAQsExpert InsightsSupply is a vital aspect of the economy. MoneyGeek interviewed an industry leader and an academic to provide expert insight and help you better understand the role of supply in economics.
Tenpao Lee Professor Emeritus of Economics at Niagara University
Jim Wasserman Former Business Litigation Attorney, Retired Economics & Humanities Teacher and Author About the Author sources
Is the total amount of a specific good or service that is available to consumers?Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph.
What can be defined as the amount of a good or service that is available for sale?Supply is the amount of a product that would be offered for sale at all possible prices in the market. That means the amount a producer will offer when the price is: $1, $2, $5, $100, $1000, etc. The Law of Supply states that suppliers will normally offer more for sale at higher prices and less at lower prices.
Is the amount of goods and services available for sale at a certain time and price?Supply is the quantity of goods and services readily available for sale in the market at a given price. Supply is decided by price and demand.
What is it called when the quantity of a good or service supplied and the quantity of the same good or service demanded are equal to each other?A market-clearing price is the price of a good or service at which quantity supplied is equal to quantity demanded, also called the equilibrium price.
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