THEORY OF SUPPLY
Supply is the quantity of goods that the producers or seller are willing and able to offer for sale at a given price and at a particular time.
TYPES OF SUPPLY
COMPLEMENTARY (JOINT) SUPPLY: This supply occurs when two or more commodities are produced and supplied from one source. An increase in the production and supply of one will automatically bring about increase in the production and supply of the other commodities that are produced from the same source, eg an increase in production and supply of petrol from petroleum (crude oil) can lead also to an increase in supply of kerosene and other products from crude oil.
COMPETITVE (SUBSTITUTE) SUPPLY: This supply occurs when many commodities are supplied for the satisfaction of a particular want. In other words, it is the supply of two or more commodities that serves as substitute or alternative to one another, eg meat and fish, omo blue detergent and elephant blue detergent, margarine and butter.
COMPOSITE SUPPLY: This supply occurs when a certain commodity can serve two or more purposes. In other words, the supply of the commodity for one purpose will greatly affect the supply of the same commodity for another purpose, eg flour for production of doughnut will greatly affect the production of cake, cassava for the production of starch will greatly affect the production of garri.
LAWS OF SUPPLY
It states that the higher the price, the greater the quantity that will be supplied; then the lower the price, the lower the quantity that would be supplied. This means that producers tend to offer more sales at a higher price and less at a lower price.
FACTORS INFLUENCING THE SUPPLY OF A COMMODITY
Price of the commodity: This is the most important factor influencing supply. The higher the price of the commodity, the higher the quantity supplied and vice versa.
Cost of production: If the cost of producing a commodity falls, then more of that commodity could be supplied at the existing price. It therefore means that a producer will be able to produce more commodities with the existing raw materials, hence increase in supply.
Technological development: An improvement in the level of technology will equate to improvement in the methods or techniques of production. This will encourage large scale production at lower costs which in turn increases supply e.g. the use of modern farming techniques and equipment.
Season:- The prevailing seasons will influence the supply of a particular commodity. E.g. More umbrellas will be supplied during the rainy season and this also applies to agricultural products.
Government Policies: Government policies such as subsidies, restriction on importation affect the supply of goods both in the long and short run.
Expectation of future change in prices: The expectation of suppliers about the future of the prices of some goods may affect supply. E.g. If the supplier suspects reduction in prices in future, he or she will reduce the quantity supplied of the commodity, so as to enjoy higher prices.
Taxation: Increased taxation on goods will raise the producers cost of production and by extension affect the supply of the product.
The prices of other commodities: When the prices of some commodities are high, some producers may switch over to the production of such commodities and stop producing the commodities with lower prices.
EXCEPTION TO THE LAW OF SUPPLY
Exceptional or Abnormal Supply: is the supply pattern which does not abide by the law of supply, and
therefore, gives rise to the reverse of the basic law of supply which states that the higher the price, the higher the quantity of commodity that will be supplied by the producer, and vice-versa. An abnormal supply also called a Regressive or Backward Sloping Supply Curve. Shows that at higher price, less quantity will be supplied. That is a negative situation in which a fall in the price of a commodity leads to an expansion of its supply
ELASTICITY OF SUPPLY
Elasticity of supply is the degree of change or extent of change in the quantity of a commodity supplied in the response to a change in the price of that commodity. The formula for calculating elasticity of supply is
ES = % change in supply/ % change in price
When elasticity is;
i) Less than 1, supply is inelastic
ii) Equal to 1, supply is unitary
iii) More than 1, supply is elastic