What is Supply?
In Economics, supply means the relationship between prices and production. In general, the higher the market price of a good or service is, the more producers are willing to sell of it.
Details
When the market price of a product increases, companies are motivated to produce and sell more of it in order to maximize their profits. In contrast, when the market price declines, companies become less inclined to produce, resulting in a decrease in the quantity supplied.
Take a look at the graph on the right, notice that the quantity does not start going up until the price gets above a certain point. This is because companies will not start producing something until the market price is at least as high as the cost of making it. As the market price goes up, the potential for profit also goes up, so companies are willing to put more resources into the production of this good, and the quantity supplied increases.
Difference Between Supply and Quantity Supplied
Supply refers to the relationship between the price and quantity. In our graphs, the supply means the entire red line. The quantity supplied is a single point on that line.
A change in supply refers to a shift in the entire supply line, indicating a change in the overall quantity of a product that suppliers are willing to produce and sell. On the other hand, a change in the quantity supplied refers to a movement along the existing supply line, resulting from a change in demand. It represents a change in the specific amount of a product that suppliers are willing to make and sell at a given price.
An increase in supply usually means there was a fundamental shift in how the good is produced. A new manufacturing technique that saves on cost, subsidies from the government, or the cost of inputs becoming cheaper can all cause an increase in supply.
In contrast, new government regulations, an increase in the cost of inputs, or increased wages for workers (assuming they do not become more productive) will all cause supply to decrease.
The quantity supplied, on the other hand, can move because of both shifts in supply and demand. As you can see on the graphs above, an increase in supply will cause the price to decrease and the quantity supplied to increase, even if demand does not increase.
However, if demand increases (meaning more goods are demanded at the same price), the quantity supplied will also increase, even though the supply line itself stays the same.
Examples With The Stock Market
The stock market is a perfect example of seeing both changes in supply and changes in quantity supplied in action.
Imagine there is a stock that 10 people currently own. Each of them has a price they would sell their stock for, if someone offered.
This would then be the supply line for this market:
The actual quantity supplied will depend on what price buyers are willing to pay. The Last Price is $15, and that is because the market price was high enough for our lowest two suppliers to sell their shares.
If we look at the Bid/Ask, we can also see that the most a buyer is willing to pay (the bid price) is now $17.89. We also see that the Ask price is now $20, which is the lowest amount that a seller is willing to take for their share.
This means for today at the market equilibrium price, the quantity supplied is 2.