Supply may be defined as the quantity of goods and services which sellers are willing and able to offer for sale at a particular price, and at a particular period of time. Supply does not mean the entire stock of a commodity in existence or the total quantity of that commodity produced but rather it means only the amount that is put into the market or offered for sale at a given price and at a particular period of time. This is referred to as ‘Effective Supply’
LAW OF SUPPLY
The law of supply states that, all things being equal, ‘The higher the price, the higher the quantity of a commodity that will be supplied or the lower the price, the lower the quantity of the commodity that will be supplied’. This law is often regarded as the second law of demand and supply. This law explains that when the price of commodity is high in the market, more quantity of that commodity will be supplied by the producer, and vice-versa.
Supply schedule is a table of value showing the relationship between the price and the quantity of that commodity supplied. It is the table showing the relationship between the quantity supplied and price of a commodity. Supply schedule is divided into two which are:
- Individual Supply Schedule
- Market Supply Schedule
The table below shows the individual supply schedule for bags of wheat.
|Price per bag
(No. of bag of wheat)
The table below shows the market supply schedule for bags of wheat
Price Individual Suppliers Total
|per bag||Quantity Supplied by||Quantity supplied by||Quantity supplied by||Quantity/Market|
|(₦)||Mr. Segun||Mrs. Jolaoso||Mr. Ade||Supplied|
Supply curve is the graphical representation of the supply schedule. It shows the relationship between the price and quantity of that commodity supplied by the producer. Supply curve is derived from a supply schedule.
Unlike the demand curve, the supply curve slopes upward from left to right. Both the supply curve and the supply schedule illustrate the law of supply, which states “the higher the price of a commodity, the higher the quantity supplied and vice versa.
TYPES OF SUPPLY
COMPLEMENTARY (JOINT) SUPPLY: This supply occurs when two or more commodities are produced and supplied from one source. An increase in the production and supply of one will automatically bring about increase in the production and supply of the other commodities that are produced from the same source, eg an increase in production and supply of petrol from petroleum (crude oil) can lead also to an increase in supply of kerosene and other products from crude oil.
COMPETITIVE (SUBSTITUTE) SUPPLY: This supply occurs when many commodities are supplied for the satisfaction of a particular want. In other words, it is the supply of two or more commodities that serves as substitute or alternative to one another, e.g. meat and fish, omo blue detergent and elephant blue detergent, margarine and butter.
COMPOSITE SUPPLY: This supply occurs when a certain commodity can serve two or more purposes. In other words, the supply of the commodity for one purpose will greatly affect the supply of the same commodity for another purpose, eg flour for production of doughnut will greatly affect the production of cake, cassava for the production of starch will greatly affect the production of garri.
FACTORS INFLUENCING THE SUPPLY OF A COMMODITY
- Price of the commodity: This is the most important factor influencing supply. The higher the price of the commodity, the higher the quantity supplied and vice versa.
- Cost of production: If the cost of producing a commodity falls, then more of that commodity could be supplied at the existing price. It therefore means that a producer will be able to produce more commodities with the existing raw materials, hence increase in supply.
- Technological development: An improvement in the level of technology will equate to improvement in the methods or techniques of production. This will encourage large scale production at lower costs which in turn increases supply e.g. the use of modern farming techniques and equipment.
- Season:- The prevailing seasons will influence the supply of a particular commodity. E.g. More umbrellas will be supplied during the rainy season and this also applies to agricultural products.
- Government Policies: Government policies such as subsidies, restriction on importation affect the supply of goods both in the long and short run.
- Expectation of future change in prices: The expectation of suppliers about the future of the prices of some goods may affect supply. E.g. If the supplier suspects reduction in prices in future, he or she will reduce the quantity supplied of the commodity, so as to enjoy higher prices.
- Taxation: Increased taxation on goods will raise the producer’s cost of production and by extension affect the supply of the product.
- The prices of other commodities: When the prices of some commodities are high, some producers may switch over to the production of such commodities and stop producing the commodities with lower prices.
EXCEPTION TO THE LAW OF SUPPLY
Exceptional or Abnormal Supply: is the supply pattern which does not abide by the law of supply, and therefore, gives rise to the reverse of the basic law of supply which states that the higher the price, the higher the quantity of commodity that will be supplied by the producer, and vice-versa. An abnormal supply also called a Regressive or Backward Sloping Supply Curve. Shows that at higher price, less quantity will be supplied. That is a negative situation in which a fall in the price of a commodity leads to an expansion of its supply
Abnormal supply curve (Labour)
Causes of abnormal supply are as itemized below:
- Existence of some fixed assets whose prices increase without a corresponding increase in its size, eg Land
- Rising wages of labour where a worker tends increase his leisure time and reduce his productive working hours at high wage rate.
- A producer with a particular target income may go on supplying the market with his commodities even when prices fall.
- Monopolistic practices where a producer may hold back supply even when the prices are rising, just to push the prices still higher up
GENERAL EVALUATION QUESTIONS
- Define cost.
- Distinguish between money cost and opportunity cost.
- What are those factors that determine price elasticity of demand
- Explain the sources of finance available to a limited liability company
- Why do people hold money.
- Define supply.
- State the law of supply.
- What is a supply schedule?
- Briefly explain types of supply
- List at least four exceptions to the law of demand
- Itemize and explain the factors influencing the supply of candle.
- Effective supply means the ____ of goods produced at a particular time (a) proportion (b) entire quantity (c) total volume (d) entire stock
- A backward sloping supply curve indicates ____ (a) effective supply (b) composite supply (c) abnormal supply (d) competitive supply
- The quantity of goods offered to the market at respective prices and presented in a table is called (a) Price Schedule (b) supply schedule (c) scale preference (d) demand schedule
- An inferior good is one (a) whose price is lower than the prices of other goods (b) that is too bad for consumption (c) that is easily perishable (d) whose demand falls when the income of its consumer increases
5. Which of the following is a luxury item (a) petrol (b) text book (c) pencil (d) gold
- Mention four factors that influence the supply of a commodity
- List four factors that are responsible for abnormal supply.
DEMAND: DEFINITION, LAW, TYPES & FACTORS
THEORY OF INCOME DETERMINATION