Supply is an important economic term that denotes the amount of available goods and services in a country. The term is closely related to the term demand; both demand and supply determine the price of a particular goods and services.
There is an inverse relationship between supply and prices. All factors being equal, an increase in supply of goods results in decrease in the prices and vice versa. Equilibrium prices are achieved at the point where the supply of good is equal to the demand. If the demand is greater than the supply, the price of good will increase, while if the demand is less than the supply, the price of goods falls.
Explanation of the term ‘Supply’
Supply patterns in context of an economy differs for every good and services, and is based on such factors as utility, price, and customer tastes. The optimum utility, price, and profits are achieved at the equilibrium prices where the demand equals the price.
Supply concept has different applications in the economy. Apart from affecting the price of a good or service, the general level of supply in a country impacts the economy of the country. If the supply of goods and services does not match the demand, inflation level will increase in a country. In case the supply of goods is greater than the demand, it will result in deflation. Ideally, both the demand and supply of goods should be equal, which would result in zero inflation. However, this does not happen in the real world.
In developed countries the supply and demand levels are such that it results in + 2% inflation rate. On the contrary, in less developed economies the supply level tends to be much lower than the demand. As a result the inflation rate amount to in double digits.
Increase in supply that is in line with the demand generally contributes to economic growth. There a number of factors that can help in improving supply of goods in a country. For instance, technological advancements that leads to reduced production costs or improved productivity helps in increasing the supply level in a country. Other factors that play a part in improving general supply levels in a country include transport infrastructure, utilities, labor costs, and government incentives.
Further Reading
- Supply chain finance: a literature review – re.public.polimi.it [PDF]
- Does finance solve the supply chain financing problem? – www.emerald.com [PDF]
- Food and finance: The financial transformation of agro-food supply chains – www.tandfonline.com [PDF]
- An empirical investigation between money supply government expenditure, output & prices: The Pakistan evidence – papers.ssrn.com [PDF]
- Short-term financing in a cash-constrained supply chain – www.sciencedirect.com [PDF]
- Supply chain finance: applying finance theory to supply chain management to enhance finance in supply chains – www.tandfonline.com [PDF]
- Supply chain finance: A systematic literature review and bibliometric analysis – www.sciencedirect.com [PDF]
- Effects of fiscal deficit and money M2 supply on inflation: Evidence from selected economies of Asia – papers.ssrn.com [PDF]
- Research on Supply Chain Financing Service [J] – en.cnki.com.cn [PDF]
- The demand and supply of external finance for innovative firms – academic.oup.com [PDF]
