Economists call the offer the volume of products that manufacturers can put on the market. The main objective of the functioning of any commercial unit is to make a profit. Therefore, the law of supply expresses the relationship between output and price level. Ordinary logic suggests that it is directly proportional. In an effort to increase profits, commercial firms have a huge incentive to increase production if prices rise.
Description and determining factors
Supply is a fundamental economic concept. It describes the total volume of a certain product and service that is available to the consumer at a certain price. Demand, on the contrary, describes how much products the entities are willing to buy. Naturally, they want to pay less. Therefore, between demand and price can be observed inversely proportional relationship. The following factors influence the proposal:
- The price of the product itself. The larger it is, the stronger manufacturers increase output.
- Prices for related products. For the purpose of analyzing the proposals, they include everything that is used in the production of the product of interest. For example, paper is made from wood. Therefore, it can be considered as a related product when considered in this case. If the price of it rises, then this leads to an increase in the cost of paper production. Therefore, her proposal will decline. As related products are sometimes also considered products that the company could produce with the same factors. For example, a company produces leather belts. However, it is possible that it would be much more profitable for her to produce cases for phones. Therefore, the company in this situation can reduce the supply of belts. The volume of output is also affected by the price of complementary goods.
- Production conditions. New technologies allow you to produce more with less.
- Expectations If manufacturers believe that in the near future the demand for their goods will increase, then they can increase the supply in advance.
- Prices for factors. The larger they are, the less firms can produce.
- The number of suppliers in the market. The increase in their number leads to increased competition and lower prices.
- State policy and legislation. This factor can lead to a shift in the supply curve both to the right and to the left.
Historical development concept
For the first time, the law of supply and demand was formulated by John Locke. He gained popularity after the publication of the famous work of Adam Smith in 1776. What the law of the sentence expresses was first graphically depicted in 1870. However, Alfred Marshall examined it in detail in 1890. Demand and supply are not studied separately, but in mutual influence.
Essence of the concept
The law of supply expresses the relationship between rising prices and output. Its popularization is associated with the industrial revolution. She allowed to see that there is a direct relationship between prices and volumes of products. Moreover, it is directly proportional. This means that price increases, with other factors unchanged, always lead to an increase in supply. And this is understandable, because firms strive to build their own profits. Thus, in short, the law of supply expresses a positive relationship between output and price. This is the reason for the upward slope of the curve. When prices fall, output decreases.
Mathematical definition
The law of supply expresses the relationship between prices and output. Therefore, it is precisely these parameters that need to be introduced into its mathematical definition. Let p and p 'be the volumes of output, and let y and y' be the prices corresponding to them. Then, that the law of the proposal expresses a direct relationship between these two parameters can be written mathematically as follows: (p - p ') * (y - y') => 0. If p> p ', then y> y'.
