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John Spacey, December 31, 2017 updated on January 01, 2018
Supply is value that firms and individuals are willing to provide to a market for a price. This is a basic force of economics that is used to model production, prices, business cycles and a broad array of economic conditions and theories.
Supply CurveSupply is typically modeled as a curve that shows the quantity of a good that market participants are willing to supply at a particular price level.Supply & DemandSupply curves are often modeled together with a demand curve that depicts the quantity that the market is willing to buy at a price. The point where these two graphs intersect is known as an equilibrium price. This represents the price and quantity that would be produced by an efficient market.
Business CyclesAs the price of a good goes up, firms and individuals have incentive to increase supply. This can take time and doesn't happen immediately as it can require building factories and other facilities such as mines. In many cases, it takes an industry years to adjust to higher prices by increasing supply. Multiple producers may invest in new capital when a price goes up. This can result in a sharp increase in supply months or years later that collapses the price resulting in declining capital investment. Industries commonly go through a cycle of high prices and undersupply followed by investment and a period of low prices and oversupply.
Supply ShocksA supply shock is a sudden drop in supply due to factors such as war, trade wars, disruptions, disasters or the exit of firms from a market . This can result in a large price increase that occurs quickly. In the example above, the price moves from e1 to e2 due to a supply shock such as a trade war whereby a nation cuts supply to a partner due to a dispute.
Types of SupplySupply can include goods, services, labor, assets, securities and currency.|
| Type | | | Definition | Value that firms and individuals are willing to provide to a market for a price. | | Related Concepts | |
Price Economics
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