Supply Analysis, Law of Supply
Supply Analysis is a research and analysis done to understand the supply trends and responses to changing market and production variables. Supply Analysis takes into account the production costs, raw material costs, technology, labour wages etc. The analysis helps the manufacturers and companies to understand the impact of these variables on supply and eventually demand.
The goal of demand-supply chain is to make sure that the supply and demand work properly. The demand should be met and supply should not be more than what expected. There are lot of variables which are considered in demand analysis and supply analysis.
Supply Analysis helps manufacturers to analyse the impact of production changes, policies on increase or decrease in supply of finished goods. e.g. newer upcoming technology can help produce more goods in same amount of time. The analysis can help determine if this new technology should be adopted or not. Also if this technology can help produce more, is the demand there for more products. What impact will it have on the current labour and how would be it impact supply in the market.
LAW OF SUPPLY
The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale.
· The law of supply says that a higher price will induce producers to supply a higher quantity to the market.
· Supply in a market can be depicted as an upward sloping supply curve that shows how the quantity supplied will respond to various prices over a period of time.
· Because businesses seek to increase revenue, when they expect to receive a higher price, they will produce more.
The law of supply summarizes the effect price changes have on producer behavior.
For example, a business will make more video game systems if the price of those systems increases. The opposite is true if the price of video game systems decreases. The company might supply 1 million systems if the price is $200 each, but if the price increases to $300, they might supply 1.5 million systems.
To further illustrate this concept, consider how gas prices work. When the price of gasoline rises, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves; drill for more oil; invest in more pipelines and oil tankers to bring the oil to plants where it can be refined into gasoline; build new oil refineries; purchase additional pipelines and trucks to ship the gasoline to gas stations; and open more gas stations or keep existing gas stations open longer hours.
The law of supply is so intuitive that you may not even be aware of all the examples around you.
· When college students learn that computer engineering jobs pay more than English professor jobs, the supply of students with majors in computer engineering will increase.
· When consumers start paying more for cupcakes than for donuts, bakeries will increase their output of cupcakes and reduce their output of donuts in order to increase their profits.
· When your employer pays time and a half for overtime, the number of hours you are willing to supply for work increases.