Individual Supply Means

What is Individual Supply

 

In this article, the information about Individual Supply is explained here.

Individual Supply

We should not confuse between “availability of a commodity in the market” and “supply of that commodity. They are not the same. Even if a commodity is available, it does not mean that it has been supplied. The definition of supply is given as follows:

Supply of a commodity is the quantity of the commodity that a seller offers for sale at a given price at a given time.

The definition of supply includes the following three things:

1. The quantity of a commodity offered for sale by a seller.

2. The price of the commodity given in the market at which the seller is willing to sell that quantity of the commodity.

3. The time period during which the seller is willing to sell that quantity of the commodity.

Examples of Supply

Ganga Singh sold 120 liters of milk at a price of Rs.25 per liter during last week from his dairy farm.

The fruit seller sold 600 Kg of apples during past 15 days at Rs. 50 per Kg of apple.

A firm called ‘X’ Ltd. sold 8 quintals of sugar at a price of Rs.2800 per quintal in one day.

The grain merchant sold 300 quintals of rice at Rs.2300 per quintal in the month of August.

Note that the time period may vary. It may be a month, a week or two weeks and so on.

 

FACTORS AFFECTING INDIVIDUAL SUPPLY

What factors influence the individual supply of a commodity?

The most important factors are the following:

(i)     Price of the commodity

(ii)   Technology of production

(iii) Price of inputs

(iv) Price of other related goods

(v)   Objective of the firm

(vi) Government policy

(i)                 Price of the commodity: Price of the commodity is an important determinant of supply of a commodity. When a producer produces a commodity he incurs a lot of expenditure on factors of production and raw materials etc. which we call cost of production. He can recover these costs by selling the product at certain price in the market. Since price is also the average revenue, higher the price higher will be the average revenue and accordingly higher will be total revenue. So price is a very important determinant of supply.

(ii)               Technology of production: An improvement in technology of production reduces the cost of production per unit of the commodity which increases the margin of profit of the firm. This induces the firm to supply more of the commodity with the use of improved technology On the other hand if a firm uses old and inferior technology; it increases the cost of production per unit of the commodity and reduces the margin of profit which leads to decrease in supply of the commodity

(iii)             Price of inputs: Suppose a firm is producing ice cream. If the price of milk falls, the cost of production per unit of ice creams will fall. It will lead to increase in margin of profit per unit. So, the firm will increase the supply of ice cream. On the other hand, if the price of milk increases, cost of production per unit of ice cream will increase. It will lead to decrease in margin of profit and firm will decrease the supply of ice cream. Thus, if price of any input used in production of a commodity falls, it leads to decrease in cost of the production per unit and as a result supply of the commodity will increase. On the other hand, an increase in price of any input used in production of a commodity increases cost of production per unit and decreases supply of the commodity.

(iv)             Price of other related goods: Supply of a commodity is also influenced by the price of other related goods. Let us suppose that a farmer produces two goods wheat and rice with the help of given resources. If the price of rice increases, it will be more profitable for the farmer to produce more of rice. The farmer will divert his resources from production of wheat to production of rice. As a result the supply of rice will increase and that of wheat will decrease. On the other hand, a fall in price of rice will result in decrease in supply of rice and an increase in supply of wheat.

(v)               Objective of the firm: Different firms have different objectives. Some firms have an objective to maximize their profits whereas some may have an objective of maximizing sales. Some other firms may have an objective to increase their goodwill/prestige and some may have an objective of increasing employment opportunities. A firm having an objective of increasing sales may supply more of a commodity even at a lower price. Thus supply of a commodity is influenced by the priority given to the objective by the firm and readiness to sacrifice the one for the other.

(vi)             Government policy: Government policy also influences the supply of a commodity. For example if the government increases the rate of value added tax or sales tax on a commodity, it will increase the cost of production per unit which will decrease the supply of the commodity. On the other hand, a reduction in the tax on a commodity will decrease cost of production per unit and increase the supply of the commodity.

The information provided here is about Individual Supply.  If you would you like to add more information about Individual Supply, share below your thoughts.

 


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