Imagine the international market is simply unrealistic without supply. However, not every modern person knows the correct interpretation of this term, so we will try to reveal it now, and also understand what the supply function is and how it affects all economic processes. The main thing to remember is that economics is a simple science, and to understand it, you just need to imagine everything with a good example.
General concept of the term
An offer is considered the ability and complete readiness of a manufacturer to sell its own goods and services under certain conditions. These are price indicators that are set depending on the actual economic situation in a particular period of time. In turn, the supply function is the relationship of the market supply in full and the factors that determine the economic good. Here the market supply isthe total amount of an economic good supplied to the market by all operating producers in a given time period.
What does this offer consist of?
As you noticed, the supply function includes such a component as an economic good. Characterizing this concept, we can say that these are the determinants of offers, which determine the ability of producers to exhibit and sell their goods and services at a bargain price. In this scheme, it is also important that the costs that go into the production of all these products or services do not exceed the market, so-called total, price of this good. In order to make it clearer what these determinants are, we divide them into two categories. The first will include price, that is, the function of the supply of money or the price of the good produced. The second group includes such components as capital resources, labor, natural resources, the number of workers, taxes, equipment, manufacturers' expectations, in a word, non-price factors.
Everything in a language everyone understands
As a result, you can deduce an ordinary everyday formula that everyone will understand. The supply function is the totality of all production factors and their dependence on the price that is currently relevant for manufactured products. It is easy to draw in the form of a graph (see figures), it is often represented in textbooks on economics with intricate Latin terms and notation. In fact, this indicator is strongly related to the thresholdprofitability, as well as with constant price fluctuations, which can be traced both on the stock exchanges and in a market economy. That is why the supply function characterizes to some extent the viability of the enterprise.
Structure of a modern market economy
Now let's look at how you can, focusing on the named economic indicator, determine some market data, as well as approximately model the work of a particular enterprise. Therefore, we will delve a little into the theory of this science. The supply function characterizes changes in the supply of the market depending on changes in demand. Also, this function determines the prices of goods that are currently relevant in various markets. Its range of "actions" also includes fluctuations in supply depending on price dynamics and total production volumes at a specific moment at which a single price was established.
The unshakable laws of finance
Every economist knows perfectly well what the market supply function, or the law of supply, is. This is an integral part of a market economy, which is characterized by a direct relationship between the market volume of a good and the price indicator for this very good. In simpler terms, we can say that prices are rising, and with them the volume of supply is increasing. If the pricing policy has a decreasing trend, then production volumes also decrease. It is on this principle that the modern market is built, exclusively all economicand financial institutions, large enterprises, small organizations and private firms.
Offer function in action
Now let's look at exactly how supply functions work in the economy, and how they affect changes in various indicators and market factors. The first point is the pricing policy for these very factors of production. If the manufacturer has to spend more money on raw materials, wages, equipment and other things related to its activities, the volume of output decreases accordingly. If the funds spent on the production process are small, the costs of determinants are reduced along with them, therefore, it is possible to produce a large amount of products.
The second point is the introduction of new technologies. If more advanced technology is used in production, its final volumes will increase significantly. In the event that the prices of fixed factors of production remain the same, the enterprise will be able to get much more profit from the sale of more products at the same price. Point number three is the well-established management of the company. We are talking about the number of sellers that the company releases to the market. The more recommended the product and, most importantly, the more points (regions, cities, countries), the greater the turnover will be, hence the profit.
On the fourth point, only losses can be noted, since we will talk about taxes. Nowadays, the growth of dataeconomic costs are not new to every entrepreneur. You have to pay more and more: for production equipment, for employees and even for your own profit. Thus, the cost of a productive good increases, which leads to a decrease in the total total profit. Well, in the fifth paragraph, we note the so-called forecasts of the manufacturers themselves or their expectations. Sometimes entrepreneurs assume that the prices of the goods they produce will rise, so they produce everything in small volumes. Naturally, the behavior of stock fluctuations and other economic and financial indices is unpredictable, which is why many people miss. But in this case, as they say, everyone has their own policy.
