What it means
Businesses decide how much to produce by comparing the price they can get with the cost of making each extra unit. At a low price, only the cheapest producers find it worthwhile to sell.
As the price rises, more producers can make a profit, and existing ones are willing to produce more. That relationship is the law of supply, and quantity supplied is a single point on it.
If you know the price, you can read off how many units sellers will offer. A schedule or a graph that links many prices to many quantities is called the supply curve.
It is important to separate a change in quantity supplied from a change in supply. A change in price causes a movement along the same curve, which is a change in quantity supplied.
A change in something else, such as input costs, technology or taxes, shifts the whole curve, which is a change in supply. Businesses use these ideas when setting production plans and pricing.
A manufacturer that knows how much output it can profitably offer at different prices can decide how many shifts to run. Analysts use the same logic to forecast how markets will react when prices move.
The responsiveness of quantity supplied to price is called the price elasticity of supply. Goods that can be produced quickly, such as software licences, have high elasticity, while goods with long lead times, such as mines or housing, have low elasticity.
Time matters because producers can usually adjust more in the long run than the short run. Costs sit behind the curve.
A producer's marginal cost, the cost of making one more unit, usually rises as output grows because of overtime pay, older machinery or scarcer inputs. Quantity supplied rises with price because a higher price covers those higher marginal costs.
In practice
Real-world examples.
Example
A farmer sees wheat prices rise from $6 to $8 a bushel and plants more acres next season. The quantity supplied increases because the higher price makes extra production worthwhile.
Example
A ride-hailing platform pays drivers a bonus during busy hours. More drivers log in, so the quantity supplied of rides rises without any change in the platform's costs.
Example
A homebuilder is asked whether it can respond to a sudden rise in house prices. Its finance director explains that land, permits and labour limit how fast supply can rise, so quantity supplied will increase only slowly. He also asks suppliers for their lead times before promising extra volume.
Formula
Calculation
Quantity supplied = a + (b x price), where a and b come from the supply schedule
Price elasticity of supply = percentage change in quantity supplied / percentage change in price
Suppose a bakery's weekly supply is given by Qs = -200 + 50P, where P is the price per box in dollars. At a price of $10, Qs = -200 + (50 x 10) = 300 boxes. At $14, Qs = -200 + (50 x 14) = 500 boxes. The quantity rises by (500 - 300) / 300 = 66.7% while the price rises by (14 - 10) / 10 = 40%, so elasticity is 66.7 / 40 = 1.67, which means supply is elastic.Case study
Seen in the real world.
Coastline Coffee Roasters is an illustrative, fictional business that sells roasted beans to cafes. Its owner noticed that when the price per kilogram was $12, the roastery produced 800 kilograms a week, and at $15 it produced 1,100 kilograms.
The finance manager worked out that the roaster could add a second shift when the price reached $14, because the extra labour cost was covered. Between $12 and $15, the quantity supplied rose by (1,100 - 800) / 800 = 37.5% while the price rose by 25%, so elasticity was 1.5.
In the illustrative follow-up, the owner used the figures to set a production plan for the year and to negotiate with cafes. The lesson is that a clear picture of quantity supplied at different prices helps a business decide when expansion pays. The owner also noticed that above $15 the roaster would need new equipment, so the quantity supplied would stop rising smoothly. He used that insight to decide when a capital purchase might be justified.
Watch out
Common mistakes.
- Confusing a change in quantity supplied with a change in supply, when the first is a movement along a curve and the second is a shift of the curve.
- Assuming producers can raise output instantly, when capacity, staff and materials may limit the short-term response.
- Using quantity produced as if it were quantity supplied, when stock levels and unsold goods can differ.
Questions
People also ask.
What causes the quantity supplied to change?
A change in the price of the good itself, holding everything else constant.
What shifts the supply curve?
Changes in input costs, technology, taxes, subsidies, the number of sellers and expectations about future prices.
Is quantity supplied the same as quantity demanded?
No, supplied is what sellers offer and demanded is what buyers want, and they are equal only at the market equilibrium price.
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