Supply refers to the amount of a product or service that is available for purchase at a given price. In economics, the concept of supply is used to understand and analyze various economic phenomena, including production, prices, business cycles, and a range of economic conditions and theories. Firms and individuals who produce goods or provide services are willing to offer them for sale in a market at a certain price, which is known as the supply of that product or service.
Supply is typically modeled as a curve that shows the quantity of a good that market participants are willing to supply at a particular price level.
Supply & Demand
Supply curves are often modeled together with a demand curve that depicts the quantity that the market is willing to buy at a price. The point where these two graphs intersect is known as an equilibrium price. This represents the price and quantity that would be produced by an efficient market.
As the price of a good goes up, firms and individuals have incentive to increase supply. This can take time and doesn’t happen immediately as it can require building factories and other facilities such as mines. In many cases, it takes an industry years to adjust to higher prices by increasing supply. Multiple producers may invest in new capital when a price goes up. This can result in a sharp increase in supply months or years later that collapses the price resulting in declining capital investment. Industries commonly go through a cycle of high prices and undersupply followed by investment and a period of low prices and oversupply.
A supply shock is a sudden drop in supply due to factors such as war, trade wars, disruptions, disasters or the exit of firms from a market . This can result in a large price increase that occurs quickly.
Types of Supply
Supply can include goods, services, labor, assets, securities and currency.