Examples of Supply in Economics

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Supply is defined as the total amount of a given product or service that is available for purchase at a set price. This core component of economics may seem vague, but you can find examples of supply in everyday life.

Definition

The law of supply states that assuming all else is held constant, the quantity supplied for a good rises as the price rises. In other words, the quantity demanded and the price are positively related.

  The relationship between supply and demand can be illustrated like this:

SupplyDemandPrice
ConstantRisesRises
ConstantFallsFalls
IncreasesConstantFalls
DecreasesConstantIncreases

Economists  say supply is determined by several factors, including:

Price

Buyers want to pay as little as possible for a good or service, while producers want to maximize profit by charging as much as possible. When supply and demand are balanced, price tends to be stable

Cost

The less it costs to manufacture a good, the greater a producer's profit margin when that good is marketed at a specific price point. As the cost of production decreases, the more product a manufacturer can produce.

Competition

Manufacturers may be compelled to lower the price of their goods in order to match the price of similar products offered by a competitor, thus lowering profits. Likewise, producers will seek the lowest price on raw materials, which can , in turn, affect suppliers.

Supply and demand do fluctuate over time, and both producers and consumers can take advantage of this. For example, consider season demand on clothing. In the summertime, the demand for swimsuits is very high. Producers, anticipating this, will ramp up production in the winter in order to meet demand as it increases from spring into summer.

But if consumer demand is too high, the price on swimwear will rise because it will be in short supply. Likewise, in the fall retailers will begin clearing out excess inventory of swimsuits to make room for cold-weather clothing. Consumers will find prices reduced and save money, but their choices will be limited.

Elements of Supply

There are additional factors that economists say can affect supply and inventory.

Specific quantity is the amount of a product that a retailer wants to sell at a given price is known as the quantity supplied. Typically a time period is also given when describing quantity supplied For example:

  • When the price of an orange is 65 cents the quantity supplied is 300 oranges a week.
  • If the price of copper falls from $1.75/lb to $1.65/lb, the quantity supplied by a mining company will fall from 45 tons a day to 42 tons a day.

Supply schedule is a table which lists the possible prices for a good and service and the associated quantity supplied. The supply schedule for oranges could look (in part) as follows:

  • 75 cents - 470 oranges a week
  • 70 cents - 400 oranges a week
  • 65 cents - 320 oranges a week
  • 60 cents - 200 oranges a week

A supply curve is simply a supply schedule presented in graphical form.

The standard presentation of a supply curve has price given on the Y-axis and quantity supplied on the X-axis.

Price elasticity of supply represents how sensitive quantity supplied is to changes in price.

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Moffatt, Mike. "Examples of Supply in Economics." ThoughtCo, May. 12, 2018, thoughtco.com/the-economics-of-supply-1147942. Moffatt, Mike. (2018, May 12). Examples of Supply in Economics. Retrieved from https://www.thoughtco.com/the-economics-of-supply-1147942 Moffatt, Mike. "Examples of Supply in Economics." ThoughtCo. https://www.thoughtco.com/the-economics-of-supply-1147942 (accessed May 24, 2018).