SUPPLY

What is supply?

Supply is the quantity of goods and services which a producer is willing and able to offer for sale at a particular price over a given period of time where all other supply  factors are held constant.

Law of Supply
It states that ceteris paribus, there is a direct relationship  between price and quantity supplied
Ceteris paribus meaning all other things (other factors affecting supply) held constant.
Direct meaning as one variable is going up, the other variable is going up (price and quantity demanded) and as one is going down the other variable is going down. They move in the same pattern.  In other words, the law states that all other factors affecting demand held constant, the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded.
No producer will want will want to supply a commodity when the prices are low and cost price is constant because revenue and profit will be little. But the moment price is increased with cost price remaining constant, more commodities will offered for sale because higher profit and revenue will be earned. 

Representative Of Supply 
The supply for a commodity may be represented as a schedule, a curve or an equation.

Supply Schedule
It is a tabular representation that shows the relationship between price and quantity supplied

                                             Supply schedule for bread 

From the schedule above, we can see that as the price of Bread in bags are increasing the quantity supplied is increasing and if the price is decreasing from N7,000 to N1,000 the quantity supplied is decreasing from 60bags to 0 bag

Supply Curve
It is a graphical illustration that shows the relationship between price and quantity supplied or that shows the supply schedule

                                                          Supply curve For Bread   

 The supply curve from the above graph is an upward slope from left to right (positive slope) indicating that are price is increasing more quantity is supplied. Or downward slope from right to left indicating that as price is reducing less quantity is supplied. 

                                                 The Demand Function/Equation

The supply function or equation is a mathematical expression showing a relationship between the quantity supplied of a commodity and the factors that affects supply (price, price of related commodity, cost of production, technology) . If all the other supply factors  are held constant and allow quantity supplied to depend only on the price of the commodity then we have:

Qs = f (P)

Where Qs is the quantity supplied and P, the market price

Illustration 

Suppose the supply function for bread given as:

Qs = – 10 + 0.01P

Where P is the price and Qs, the quantity supplied. Find the quantity that will be supplied when the market price of bread is :

(a) N1,000 (b) N1,500

Solution:

From the supply function:

Q = - 10 + 0.01P

(a) If price is N1,000, the quantity supplied will be:

Qs = - 10 + 0.01(1,000) = -10 + 10 = 0

i.e. Suppliers of Amala will not supply the product if the market price is N1,000

b) If price is N1,500, the quantity supplied will be:

Qs = -10 + 0.01 (1,500) = -10 + 15 = 5.

i.e. Suppliers of Bread will supply 5 bags if the market price is N1,500

Factors affecting of Supply

They are the basis upon which quantity supplied are based. Any changes in any of these factors will have a little or substantial effect on quantity supplied, they are:

1. Price: For most commodities, when the price falls, less quantity is supplied while when the price rises, more quantity is supplied when all other supply factors remain constant.

2. Prices of Inputs (cost of production): These are the prices firms pay to obtain factors of production or inputs. They are the cost incurred in making the commodities. Firms pay wages and salaries for hiring labour, rent for the use of land and interest for capital. Increase in cost of production will reduce the quantity supply, because when cost price is increase and selling price remain constant will reduce profit converse is the same when cost price is reduced. 

3.Technology: When a firm uses the best technology available, it can produce a unit of a commodity at the lowest possible cost (economic efficiency). An advancement or improvement in technology is the development of new means of producing a good using a smaller quantity of inputs than was previously possible (technical efficiency). Technological innovation also results in the development of new products that are less costly to produce than the products they replace. Thus, technological change lowers  production costs, which in turn leads to increase in profits and, therefore, increases 

supply.

4. Prices of other commodities:

 (i) Competitive supply products: Because firms have the objective of maximizing  profits, rising prices for other products could cause firms to switch to the production of these products. For example, if the price of coke increase, and that of Pepsi remains constant, producer will have to shift their resources towards the production of coke because coke will yield more profit as compared to the production and supply of Pepsi. 

(ii) Joint-supply products: These are products that are always produced together. One is seen as the by-products of the other. Examples are beef and hide. An increase in the price of say beef, which increase the quantity of beef supplied to the market, will automatically increase the supply of hides, from which leather products are made. Both commodities will yield the production of leather. 

5. Government Fiscal Policy (Taxes and Subsidies): Taxes increase cost of a product which in turn reduces the supply of a product on the other hand, Subsidies reduces the cost price of a product which in turn increases it's supply

6. Weather and other Natural Phenomena: Changes in weather affect the supply of certain commodities especially agricultural products. A favourable weather condition such as good rainfall will increase the supply of agricultural products whiles an unfavourable weather such as drought will cause a decrease in the supply of agricultural products. Other natural phenomena such as, floods, bush fire, pests and so on also affect the supply of agricultural products. 

Types of supply:

1. Joint/complementary Supply: Goods are said to be joint supplied goods when the supply of one product is in the association on the supply of the other product.  it refers to the goods produced or supplied jointly/together e.g., cotton and seed; mutton and wool. In meaning supplied products one is the main product and the other is the by-product of its subsidiary. By-product is mostly the automatic outcome when the main product is produced. e.g when sheep is slaughtered, cotton is gotten also when goat is slaughtered, leather is gotten. 

2. Composite Supply: In this, the supply of a commodity is made from various sources and is called the composite supply. When there are different sources of supply of a commodity or services,

we say that its supply is composed of all these resources.

We normally get light from electricity, gas, kerosene and

candles. All these resources go to make the supply of light.

Thus, the way of supplying the light is called composite

supply.

3. Competitive Supply: it involves the supply of goods/services which can most easily be produced with the resources at the firm`s disposal.

Article by: Monday Desmond