The Ultimate Guide To Supply Schedules

By Indeed Editorial Team

Updated March 17, 2021 | Published February 4, 2020

Updated March 17, 2021

Published February 4, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A healthy balance in the relationship between supply and demand is what keeps the economy thriving. Demand is influenced by the consumer's income, preferences and also by competition in the market. These demands drive the price up or down requiring sellers to adjust their supply of goods and services.

In this article, we explore the supply schedule part of the relationship. We'll discuss what it is, what factors influence it and the five types of supply.

What is a supply schedule?

A supply schedule is a table that depicts the relationship between the price and the supply. It is used to determine how much supply is necessary to produce to fulfill market demand. There are two types of supply schedules:

  • Individual supply: An individual supply schedule shows the availability of one business's product in the market at a given price.

  • Market supply: A market supply schedule shows the availability of one product in a market from different businesses at a given price. An example of this would be bathroom tissue that is available from different brands.

The law of supply states that there is a direct relationship between price and the amount producers are willing to supply. This means that as the price of a product or service increases the quantity increases. The opposite is also true.

What determines a supply schedule?

A supply schedule is calculated by adding up all the available units of an individual business or the entire market at a given price. Although price is the most important influencer, there are many factors that determine supply including:

  • Stock: The amount of the product the seller has available is their stock. The availability of stock influences when the seller goes into production and how quickly new goods are supplied to the buyer. For a service, the stock would be how many available agents there are to take on new clients.

  • Competition in the market: The number of businesses in the market influence the amount of product in the market. The higher the competition in the market, the more supply there is and vice-versa.

  • Cost of inputs: Cost of inputs is the amount a seller has to expend to get a product to market. Factors that influence cost are production costs, resource prices and transportation costs. When costs increase, the supply in the market will go down and the price will go up.

  • Joint product prices: Joint supply occurs when the production of one product creates another. Examples of this are meat and leather or wood and sawdust. When the price of product A goes up the supply of product A also goes up. This increases the supply of product B but drives its price down.

  • Related product prices: When a supplier producers two similar goods that consumers choose between, the rise in the price of one will drive down the supply of the other. For example, if product X and product Y are substitutes for one another and the cost of producing product X decreases, the supply of product Y will decrease. This happens as the company shifts focus to produce the least expensive alternative. This often occurs when a supplier creates an updated product. The cost of input for the updated product decreases relative to the old product so the company slowly stops producing it.

  • Technology: As technology improves, products are manufactured faster and easier increasing the supply of goods and services.

  • Seller price expectation: Producers are always conscious of making a profit on their goods. If their costs don't drop relative to the price, they risk functioning at a deficit. If a seller believes the future price of goods will drop, they will decrease the amount of product they supply.

  • Government subsidies and taxes: Subsidies are funds offered by the government to stimulate the production of a good or service. An example of this is offering a tax break to companies that create products that are better for the environment. The subsidy lowers input costs increasing the amount the supplier can produce. Taxes are fees the government levies on income, property or a potentially damaging product. These have the opposite effect of subsidies on the supply in a market.

  • Natural conditions: Natural conditions refer to the location conditions under which products are created. For example, if a tropical fruit is only supplied from one part of the world, a change in temperature or natural conditions will affect the supply. Likewise, in agriculture, a change in soil conditions will affect both the crop and the amount of harvest that is supplied to the market.

  • Perishable nature of products: Products with expiration dates can only be supplied while they are safe to use. The length of time a product can be stored affects how much is supplied at a given price. In addition, the ability to keep a product fresh in transit will affect its supply. For instance, some foods and medicine must be kept at a certain temperature to remain safe for people to consume.

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5 types of supply

Supply is the number of goods or services a seller provides to the market. Calculating the amount to supply is vital for business owners to make strategic decisions, reduce costs and increase profits. This list details five types of supply:

Composite supply

Composite supply refers to a product that is bundled together with other things, but its parts are not sold separately. These products are things that make up the principle product such as ingredients, packaging and associated services. For example, a box of gourmet chocolate is a composite bundle of the gift wrap, the chocolate and the services to deliver it to the customer. The chocolate is the principal product. The other factors bundled in with the product are accounted for in the price and costs of the principal but cannot be sold apart from the principal product.

Joint supply

Joint supply is a factor that influences supply schedules. When the production of one product results in the production, or by-product, of another it is referred to as joint supply. These two elements are created together but can be sold separately. For example, the production of cocoa powder results in cocoa butter. Feathers, which are a by-product of the poultry industry, are another example.

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Short-term supply

Short-term supply refers to the amount of inventory expected. When the inventory on hand plus the inventory that is expected to be received is less than the inventory demanded by the market, it is said to be a short-term supply. This supply is a result of changes in demand in the market that suppliers haven't had a chance to adjust to yet.

In the short-term, the supplier may face lost profits on production costs if the price drops significantly. They may also miss out on an opportunity to sell more products if they can not produce products fast enough to meet heightened demand. For example, if a new trend hits the market and consumer interests spike, companies are forced to react quickly to meet the demand.

Long-term supply

Long-term supply is the ability of the seller to adjust to changing demands in the market over time. With more time, suppliers can decrease input costs or reallocate resources to reflect changes in product prices. They are able to supply more or produce less because they have a clearer picture of consumer behavior. For example, if the new trend has faded but the product is selling steadily, companies have time to figure out how to produce it and capitalize while the trend is still going.

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Market supply

Market supply is the entire amount of a good or service available in the market at a given price. It refers to all the sellers of one good. In highly competitive industries, there will be many suppliers of a particular good. This means that there will be many substitutes for a customer to choose from should there be any price fluctuations, affecting the amount supplied.

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