Supply - Part 2

In order to supply a product, a combination of land, labor, capital, and entreprenurs must come together. This combination between the factors of production and the output of goods and services is addressed by the theory of production.

The theory of production is usually divided into periods known as the short run and long run. In the short run, it is assumed that this period allows only the change in the variable known as labor, while the long run allows producers to change quantities of all of their resources (building new factories, producing new product lines, large-scale retraining, etc.). Read more

Supply - Part 1

While demand looks at the consumer and their willingness and ability to purchase an item, supply looks at the producer. Supply is based on the voluntary decisions made by producers as to the amount of an item to offer for sale at any given price. Supply is defined as the amount of a product that would be offered at for sale at all possible prices that could prevail in the market.

The Law of Supply has a direct relationship between quantity and price, unlike the Law of Demand which has an inverse relationship. The Law of Supply states that the higher the price, the more supply will be offered and the lower the price, the less the amount of supply that will be offered. This should not be surprising, it is a simple matter of profit seeking. Read more