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What is Supply (in Economics)
Supply is a term of economics theory. It is a summary of the amount goods supplied in the market, where it meets the demand of customers.

Supply is a term of economic theory. It is a summary of goods supplied in the market, where it meets the demand of customers. Economic theory distinguishes between:

  • Aggregate Supply - the sum of all planned sales in the economy. It is arrived at by the interaction of volume of products and services that sellers want to sell and the level of prices at which they sell.
  • Individual Supply - the volume of planned sales and prices at which one seller is willing to sell.
  • Market Supply - the volume of planned sales and prices of one product or service from all its manufacturers.

Supply is graphically described by the supply curve. This is plotted in the graph as follows:

Supply curve graph

The horizontal axis shows the quantity supplied of the product (Q) and the vertical axis captures its price (P). The supply curve (S) does not have a random shape. It grows up to the right. It corresponds to the law of supply - with increasing prices, the quantity supplied increases as well. For the producer, it is logically more interesting to sell at higher prices and any price increases attract new manufacturers to the market. A price increase also enables higher output - producers can earn more and get more production factors. Another important reasoning behind the law of supply is the law of diminishing returns. Because the profitability of factors declines with increasing production, manufacturers can produce additional units of output only at higher costs, which logically require an increase in price.

On the supply side there is competition between individual producers. Each tries to attract customers by offering their products at a lower price.

Supply in interaction with demand forms the market.

Supply in practice: Proper awareness of the supply in the market is one type of essential information with which every business must operate, both regarding their own supply (portfolio of products and services) as well as of that of the competition. The supply influences behavior in the market in all directions - it affects the product portfolio, the entire lifecycle of products and services, the speed of innovation, promotion, marketing and pricing. In a highly competitive market (strong supply of other companies), the enterprise must respond by either reducing prices, improving quality, a strong promotion or transfer to a less competitive segment.

Enterprises assess the status of the supply using various forms of market research and the personal knowledge of their merchants. The ability to correctly estimate the current and especially future state of the market is one of the essential, basic skills of the successful sales manager (CSO).

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Last update: 09.12.2015

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