Question

What is theory of supply in business economics?

Answer 1

The law of supply is a fundamental principle of economic theory which states that, Keeping other factors constant, an increase in price results in an increase in quantity supplied. In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes.

Answer 2

The total amount of a product (good or service) available for purchase at any specified price.

Supply is determined by: (1) Price: producers will try to obtain the highest possible price whereas the buyers will try to pay the lowest possible price both settling at the equilibrium price where supply equals demand. (2) Cost of inputs: the lower the input price the higher the profit at a price level and more product will be offered at that price. (3) Price of other goods: lower prices of competing goods will reduce the price and the supplier may switch to switch to more profitable products thus reducing the supply.