Supply (economics)

Amount of a good that sellers are willing to provide in the market

In economics, supply is the amount of a resource that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or to an individual. Supply can be in produced goods, labour time, raw materials, or any other scarce or valuable object. Supply is often plotted graphically as a supply curve, with the price per unit on the vertical axis and quantity supplied as a function of price on the horizontal axis. This reversal of the usual position of the dependent variable and the independent variable is an unfortunate but standard convention. The supply curve can be either for an individual seller or for the market as a whole, adding up the quantity supplied by all sellers. The quantity supplied is for a particular time period (e. g., the tons of steel a firm would supply in a year), but the units and time are often omitted in theoretical presentations. In the goods market, supply is the amount of a product per unit of time that producers are willing to sell at various given prices when all other factors are held constant. In the labor market, the supply of labor is the amount of time per week, month, or year that individuals are willing to spend working, as a function of the wage rate. In the economic and financial field, the money supply is the amount of highly liquid assets available in the money market, which is either determined or influenced by a country's monetary authority. This can vary based on which type of money supply one is discussing. M1 for example is commonly used to refer to narrow money, coins, cash, and other money equivalents that can be converted to currency nearly instantly. M2 by contrast includes all of M1 but also includes short term deposits and certain types of market funds.

A supply schedule is a table which shows how much one or more firms will be willing to supply at particular prices under the existing circumstances. Some of the more important factors affecting supply are the good's own price, the prices of related goods, production costs, technology, the production function, and expectations of sellers.

Supply functions, then, may be classified according to the source from which they come: consumers or firms. Each type of supply function is now considered in turn. In so doing, the following notational conventions are employed: There are I produced goods, each defining a single industry, and J factors. The indices i = 1, , I and J = 1, , J run, respectively, over produced goods (industries) and factors. Let n index all goods by first listing produced goods and then factors so that n = 1, , I, I + 1, , I + J. The number of firms in industry i is written L i, and these firms are indexed by l = 1, , L i. There are K consumers enumerated as k = 1, , K. The variable represents the quantities of factor j consumed by consumer k. This person can have endowments of good j from to If < then person k is a supplier of j. If the opposite is true, they are a consumer of j. The supply function is the mathematical expression of the relationship between supply and those factors that affect the willingness and ability of a supplier to offer goods for sale. An example would be the curve implied by where is the price of the good and is the price of a related good. The semicolon means that the variables to the right are held constant when quantity supplied is plotted against the good's own price. The supply equation is the explicit mathematical expression of the functional relationship. A linear example is Here is the repository of all non specified factors that affect supply for the product. The coefficient of is positive following the general rule that price and quantity supplied are directly related. is the price of a related good. Typically, its coefficient is negative because the related good is an input or a source of inputs.

Movements along the curve occur only if there is a change in quantity supplied caused by a change in the good's own price. A shift in the supply curve, referred to as a change in supply, occurs only if a non price determinant of supply changes.

By convention in the context of supply and demand graphs, economists graph the dependent variable (quantity) on the horizontal axis and the independent variable (price) on the vertical axis. The inverse supply equation is the equation written with the vertical axis variable isolated on the left side: As an example, if the supply equation is then the inverse supply equation would be .

A firm's short run supply curve is the marginal cost curve above the shutdown point—the short run marginal cost curve (SRMC) above the minimum average variable cost. The portion of the SRMC below the shutdown point is not part of the supply curve because the firm is not producing any output. The firm's long run supply curve is that portion of the long run marginal cost curve above the minimum of the long run average cost curve.

The Law of Diminishing Marginal Returns (LDMR) shapes the SRMC curve. The LDMR states that as production increases eventually a point (the point of diminishing marginal returns) will be reached after which additional units of output resulting from fixed increments of the labor input will be successively smaller. That is, beyond the point of diminishing marginal returns the marginal product of labor will continually decrease and hence a continually higher selling price would be necessary to induce the firm to produce more and more output.

The law of supply dictates that all other things remaining equal, an increase in the price of the good in question results in an increase in quantity supplied. In other words, the supply curve slopes upwards. However, there are exceptions to the law of supply. Not all supply curves slope upwards. Some heterodox economists, such as Steve Keen and Dirk Ehnts, dispute this theory of the supply curve, arguing that the supply curve for mass produced goods is often downward sloping: as production increases, unit prices go down, and conversely, if demand is very low, unit prices go up. This corresponds to economies of scale.

The slope of a linear supply curve is constant; the elasticity is not. If the linear supply curve intersects the price axis, PES will be infinitely elastic at the point of intersection. The coefficient of elasticity decreases as one moves "up" the curve. If the linear supply curve intersects the quantity axis PES will equal zero at the point of intersection and will increase as one moves up the curve; Perfect competition is the only market structure for which a supply function can be derived. In a perfectly competitive market the price is given by the marketplace from the point of view of the supplier; a manager of a competitive firm can state what quantity of goods will be supplied for any price by simply referring to the firm's marginal cost curve. To generate his supply function the seller could simply initially hypothetically set the price equal to zero and then incrementally increase the price; at each price he could calculate the hypothetical quantity supplied using the marginal cost curve. Following this process the manager could trace out the complete supply function. A monopolist cannot replicate this process because price is not imposed by the marketplace and hence is not an independent variable from the point of view of the firm; instead, the firm simultaneously chooses both the price and the quantity subject to the stipulation that together they form a point on the customers' demand curve. A change in demand can result in "changes in price with no changes in output, changes in output with no changes in price or both". There is no single function that relates price to quantity supplied.