What Is Quantity Supplied?
In economics, quantity supplied describes the amount of goods or services that are supplied at a given market price. How supply changes in response to changes in prices is called the price elasticity of supply. The quantity supplied depends on the price level, and the price can be set by either a governing body by using price ceilings or floors or by regular market forces.
Understanding Quantity Supplied
If a price ceiling is set, suppliers are forced to provide a good or service, no matter the cost of production. Typically, suppliers are willing to supply more of a good when its price increases and less of a good when its price decreases.
Suppliers' Control Over Quantity Supplied
Ideally, suppliers want to charge high prices and sell large amounts of goods to maximize profits. While suppliers can usually control the amount of goods available on the market, they do not control the demand for goods at different prices. As long as market forces are allowed to run freely without regulation, consumers also control how goods sell at given prices. Consumers ideally want to be able to satisfy their demand for products at the lowest price possible.
Determining Quantity Supplied Under Regular Market Conditions
The optimal quantity supplied is the quantity whereby consumers buy all of the quantity supplied. To determine this quantity, known supply and demand curves are plotted on the same graph. On the supply and demand graphs, quantity is in on the x-axis and demand on the y-axis.
The supply curve is upward-sloping because producers are willing to supply more of a good at a higher price. The demand curve is downward-sloping because consumers demand less quantity of a good when the price increase.
The equilibrium price and quantity are where the two curves intersect. The equilibrium point shows the price point where the quantity that the producers are willing to supply equals the quantity that the consumers are willing to purchase. This is the ideal quantity to supply. If a supplier provides a lower quantity, it is losing out on potential profits. If it supplies a higher quantity, not all of the goods it provides will sell.
Theoretically, markets should strive for equilibrium, but there are many forces that pull them away from this point. Many markets do not operate freely; instead, they face external forces, such as government rules and regulations that influence how much of a product suppliers have to provide.
Another factor to consider is the elasticity of supply and demand. When supply and demand are elastic, they easily adjust in response to changes in prices. When they are inelastic, they do not. Inelastic goods are not always produced and consumed in equilibrium.