Supply Analysis

(Supply analysis is always from Supplier /Producer point of view)

In our ordinary language the word supply is used to mean so many things. Sometimes supply is taken to mean stock of a commodity pushed into market; while sometimes it is considered as the flow of production. In Economics, supply means the quantity of product brought for sale at a price during a particular period of time. In this definition of supply we have not taken into account the total production during a particular period but only 'quantity made available for sale. We must bear in mind the distinction between supply as we defined it, and production. Thus, it is possible that out of a total stock of what is produced, a part is brought for sale and a part is held back with an expectations of a future rise in price. Similarly, it is also possible that supply would be greater than current production - if the current price is profitable, earlier stocks may be released.

Unlike a demand curve, a supply curve has a positive slope, reflecting the law of supply. The law of supply states that quantity supplied is positively related to price; i.e., firms offer larger amounts at higher prices and smaller amounts at lower prices. In this case, price is the reward for production so that higher market prices bring forth larger quantities. Higher prices provide firms with extra funds to purchase more resources or inputs to increase production. Higher prices also act as a signal to producers that consumers value their goods highly and desire more of them.