The Meaning of Supply

Supply is the schedule of various quantities of commodities which

producers are willing and able to produce and offer at various prices in a given

time and place. In other words, supply is the amount of goods and services

available for sale at given prices in a given period of time and place. Supply

implies the ability and willingness of sellers to sell.

Determinants of Supply

1. Technology. This refers to the method of production or how something is

produced. Having modern technology means being able to produce more. This

means more supply. If producers had to rely on old technology which uses

animals instead of machines, production would be slower. Better technology

means more supply produced and less cost of producing these goods.

2. Cost of production. This refers to the things a producer has to spend on to

keep making goods and services. This includes: raw materials, laborers, bank

loan interests, taxes, and land or building rent. An increase in cost of production

makes it harder for the producer because he or she has to pay more to keep

producing. This is why when the cost of producing goes up, the supply of goods

most likely goes down.

The producer, given a higher cost of production, cannot produce as much.

Wage is a cost of production. Think of a factory. A factory needs workers. The

owner of the factory needs to pay the workers so that they will help him or her

make goods. Wage is a cost that the owner has to pay. It is the cost of making

something. This means that if the owner has to pay more wage, the cost of

production goes up. This means supply of the goods will go down.

For example, businessmen don’t want to sell more goods if they are not
sure that they will get as much money. If they have to pay workers more, that

means less of their profit will stay with the owners. They have to give more of

what they earn to the workers. What if sellers just increase price when cost of

production goes up? Won’t this help them get more money? It might, but not all

the time. Remember that higher prices mean less people will buy. This means

that if the cost of production doesn’t go down soon, sellers will continue losing

money. They might have to stop producing completely.

3. Number of sellers. More sellers or more factories means an increase in

supply. On the other hand, less sellers or factories means less supply.

4. Prices of other goods. Since a price increase means less demand, a

producer may choose to produce something else to continue gaining profit or

to have more profit. Let us say, the price of rice goes up. If so, then a farmer

may choose to produce more corn instead because he knows that less people
will buy rice from him.

5. Price expectations. If producers expect prices to rise very soon, they usually

keep their goods and then release them in the market when the prices are

already high.