The law of supply

Supplyrefers to the willingness and ability of producers to offer goods and services for sale. Anyone who provides goods or services is a producer. Manufacturers who make anything from nutrition bars to automobiles are producers.

So, too, are farmers who grow crops, retailers who sell products, and utility companies, airlines, or pet sitters who provide services.

The two key words in the definition of supply are willingness and ability. For example, the Smith family grows various fruits and vegetables on their small farm. They sell their produce at a local farmers’ market. If the prices at the market are too low, the Smiths may not be willing to take on the expense of growing and transporting their produce. Also, if the weather is bad and the Smiths’ crops of fruits and vegetables are ruined, they will not be able to supply anything for the market. In other words, they will not offer produce for sale if they do not have both the willingness and the ability to do so.

As is true with demand, price is a major factor that influences supply. The law of supplystates that producers are willing to sell more of a good or service at a higher price than they are at a lower price. Producers want to earn a profit, so when the price of a good or service rises they are willing to supply more of it. When the price falls, they want to supply less of it. In other words, price and quantity supplied have a direct relationship.

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FACTOR 4 Consumer Expectations	\|	EXAMPLE Price and Supply

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