What is Supply?
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What is Supply?

What is Supply? What are its determinants?

Supply is the schedule of various quantities of commodities which producers are willing and able to produce and offer at a given price, place and time. Its determinants are:

• technology

• cost of production

• number of sellers

• prices of other goods

• price expectations

• taxes and subsidies

 The individual supply curve above shows an upward slope. The position of the supple curve indicates a direct relationship between price and quantity supplied. Based on the graph, we can say that the price of the apples in dollars is directly proportional to the quantity of apples supplied per day in pounds (lbs.). 

Determinants of Supply

1. Technology. This refers to techniques or methods of production. Modern technology which uses modern machines increases supply of goods. In contrast, primitive technology which uses animals and people is very slow in producing goods. For example, a hollow block machine can produce more hollow blocks than through manual labor. In addition, technology reduces cost of production, and this encourages the producers of sellers to increase their supply. Lower cost of production is like an increase in profit.

2. Cost of production. In producing goods, raw materials are needed, together with laborers. If the price of raw materials or the salaries of the laborers increase, it means higher cost of production. There are other production costs like the interest of a bank load, taxes, and land or building/office rent. If these increase, it results to more cost of production. Higher cost of production decreases supply, because the viability of profitability of the business decreases. Generally, businessmen are not willing to offer more goods if they are not sure of prfit. Of course, when cost of production increases, price also increases. So, there is always profit. This is not always correct. When prices are very high, most consumers reduce their purchases. This means less demand for goods and services. And the producers have no alternative (if they cannot reduce their cost of production) except to cut down production or stop operations. 

3. Number of sellers. More sellers or more factories means an increase in supply. Conversely, smaller number of sellers or factories means less supply. This situation is very evident in rich or industrial countries. They have many manufacturing firms and service industries like thise in the United States and Japan. Hence, they have also plenty of goods and services for sale. In fact their industrial goods are being exported in most other parts of the world.

4. Prices of other goods. Changes in the prices of goods have effects in the supply of such goods. For example, a decrease in the price of rice may likely encourage a rice farmer to produce more corn if this gives him more profit. Annother example, the price of sugar in the world market is very low (1985 condition), because of the oversupply of said product. This is a big problem of the Philippine sugar planters because their cost of production is even higher than the world price of sugar. 

5. Price expectations. If producers expect prices to rise very soon, usually they keep their goods and then release them in the market when the prices are already high. This creates artificial shortage due to hoarding. It has been experienced that whenever the government announces the increase in prices of gasoline, rice milk, or cooking oil, such goods immediately disappear in the market. In case producers expect prices to fall next week, they cut down their production (applicable to manufacturers). Farmers cannot reduce their supply. Their crops are already growing. On the other hand, many factories increase the number of their goods due to expected price increase. 

6. Taxes and subsidies. Certain taxes increase cost of production. Higher taxes discourage production because it reduces the earnings of businessmen. That is why the government extends tax exemptions to some new and necessary industries to stimulate their growth. Similarly, tax incentives are granted to foreign investors in order to increase foreign investments in the Philippines. This results to more goods. In the case of subsidies, these are financial grants or financial assistance to producers. 

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