Supply of a Commodity: Meaning, Factors Affecting and Types

Let us make an in-depth study of Supply:- 1. Meaning of Supply 2. Definition of Supply 3. Stock Relationship 4. Factors Affecting 5. Types.

Meaning of Supply:

In economics, supply during a given period of time means, the quantities of goods which are offered for sale at particular prices.

The supply of a commodity is the amount of the commodity which the sellers or producers are able and willing to offer for sale at a particular price, during a certain period of time.

In other-words, we can say that supply is a relative term. It is always referred to in relation of price and time. A statement of supply without reference to price and time conveys no economic sense. For instance, a statement such as “the supply of milk is 1,000 litres” is meaningless in economic analysis.

One must say, “the supply at such and such a price and during a specific period.” Hence, the above statement becomes meaningful if it is said—”at the price of Rs. 12 per litre; a diary farm’s daily supply of milk is 1000 litres. Here both price and time are referred with the quantity of milk supplied.”

Further, elasticity of supply explains to us the reaction of the sellers due to a particular change in the price of a commodity. If due to a little rise in the price, supply increases considerably we will call it elastic supply. On the other-hand, supply changes a little or negligibly, it is less elastic.

Definition of Supply:

According to J. L. Hanson – “By supply is meant that amount that will come into the market over a range of prices.”

In short supply always means supply at a given price. At different prices, the supply may be different. Normally the higher the price, the greater the supply and vice-versa.

According to Prof. Thomas – “The supply of a commodity is said to be elastic when as a result of a change in price the supply changes sufficiently as a quick response. Contrary, if there is no change or negligible change in supply or supply pays no response, it is inelastic.”

Prof. Thomas’s definition tells us proportionate changes in price and quantity supplied is the concept of elasticity of supply. If as a result of small change in price change in supply is more proportionately it will be higher elastic supply.

Supply and Stock Relationship:

Supply and stock are related to each other in distinct terms:

1. Stock is the Determinant of Supply:

Supply is what the seller is able and willing to offer for sale. The ability of a seller to supply a commodity depends on the stock available with him. Thus, stock is the determinant of supply. Supply is the amount of stock offered for sale at a given price. Therefore, stock is the basis of supply. Without stock supply is not possible.

2. Stock Determines the Actual Supply:

Actual supply is the stock or quantity actually offered for sale by the seller at a particular price during a certain period. The limit to maximum supply, at a time, is set by the given stock. Actual supply may be a part of the stock or the entire stock at the most. Thus, the stock can exceed supply but supply cannot exceed the given stock at a time.

3. Stock can be said as the Outcome of Production:

It is very common to understand that by increasing production as well as the potential supply, the stock can be increased. Sometimes, an increase in the actual supply can exceed the increase in current stock, when along with the fresh stock, old accumulated stock is also released for sale at the prevailing price.

In this way, supply can exceed the current stock, but it can never exceed the total stock (old + new stock taken together) during a given period.

Factors Affecting Supply:

There are a number of factors influencing the supply of a commodity. They are known as the determinants of supply.

Important factors are as follows:

1. Price of the Commodity:

Price is the most important factor influencing the supply of a commodity. More is supplied at a lower price and less is supplied at a higher price.

2. Seller’s Expectations about the Future Price:

Seller’s expectations about the future price affect the supply. If a seller expects the price to rise in the future, he will with­hold his stock at present and so there will be less supply now. Besides change in price, change in the supply may be in the form of increase or decrease in supply.

3. Nature of Goods:

The supply of every perishable goods is perfectly inelastic in a market period because the entire stock of such goods must be disposed of within a very short period, whatsoever may be the price. If not, they might get rotten. Further, if the stock of goods can be easily stored its supply would be relatively elastic and vice-versa.

4. Natural Conditions:

The supply of some commodities, such as agricultural products depends on the natural environment or climatic conditions like—rainfall, temperature etc. A change in the natural conditions will cause a change in the supply.

5. Transport Conditions:

Difficulties in transport may cause a temporary decrease in supply as goods cannot be brought in time to the market place. So even at the rising prices, quantity supplied cannot be increased.

6. Cost of Production:

If there is a rise in the cost of production of a commodity, its supply will tend to decrease. Similarly, with the rise in cost of production the supply curve tends to shift downward. Conversely, a fall in the cost of production tends to decrease the supply.

7. The State of Technology:

The supply of a commodity depends upon the methods of production. Advance in technology and science are the most powerful forces influencing productivity of the factors of production. Most of the inventions and innovations in chemistry, electronics, atomic energy etc. have greatly contributed to increased supplies of commodities at lower costs.

8. Government’s Policy:

Government’s economic policies like—industrial policy, fiscal policy etc. influence the supply. If the industrial licensing policy of the government is liberal, more firms are encouraged to enter the field of production, so that the supply may increase.

Import restrictions and high customs duties may decrease the supply of imposed goods but it would encourage the domestic industrial activity, so that the supply of domestic products may increase. A tax on a commodity or a factor of production raises its cost of production, consequently production is reduced. A subsidy on the other-hand provides an incentive to production and augments supply.

Types of Supply:

There are five types of supply:

1. Market Supply:

Market supply is also called very short period supply. Another name of market supply is ‘day-to-day supply or ‘daily supply’. Under these goods like—fish, vegetables, milk etc., are included. In this supply is not made according to the demand of purchasers but as per availability of the goods.

2. Short-term Supply:

In short period supply, the demand cannot be met as per requirements of the purchaser. The demand is met as according to the goods available.

3. Long-term Supply:

In this, if demand has been changed the supply can also be changed because there is sufficient time to meet the demand by making manufacturing goods and supplying them in the market.

4. Joint Supply:

Joint supply refers to the goods produced or supplied jointly e.g., cotton and seed; mutton and wool. In joint 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.

For example:

When the sheep is slaughtered for mutton wool is obtained automatically.

5. 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.