Meaning of Supply and the Supply Function

Having studied demand — the buyer's side of a market — the Gujarat Std 11 Commerce Economics syllabus now turns to supply, the seller's side. In everyday speech 'supply' is sometimes used loosely to mean the total stock a producer happens to hold, but economics gives it a precise meaning: supply is the quantity of a commodity that a producer or seller is willing and able to offer for sale in the market, at a given price, over a given period of time. Exactly like demand, supply is always stated at a price and per unit of time — 'the supply of cotton' means nothing until we say at what price and over what period.

Supply can be studied at two levels: individual supply (the quantity one producer or firm is willing and able to sell) and market supply (the sum of the individual supplies of every seller of that commodity in the market, at each price).

Determinants of supply. The quantity of a commodity offered for sale does not depend on its own price alone — several factors act together, captured by the supply function:

where $P_x$ is the price of the commodity itself, $C$ the cost of the inputs/factors used to produce it, $P_r$ the price of related goods (which compete for the same productive resources or are produced jointly), $Tech$ the state of technology, $G$ government policy (taxes, subsidies, licensing conditions), $E$ producers' expectations about future prices, and $N$ the number of sellers/firms in the market. When we study the isolated effect of a good's own price on the quantity supplied, every other determinant on this list is held constant — ceteris paribus ('other things remaining the same'). This isolated own-price relationship is exactly what the supply schedule and the supply curve, covered next, represent.