Supply

Supply describes the seller's side of a market. Generally, when the price of a product rises, producers are willing to supply more of it, because selling it becomes more profitable. This relationship is called the law of supply.

For example, if the price of tomatoes rises, farmers have an incentive to grow more, and new growers may enter the market. If the price falls, some farmers may switch to other crops.

Supply is affected by more than price. Changes in production costs, such as wages, energy or raw materials, affect how much producers can offer. New technology can make production cheaper and increase supply. The number of sellers, government taxes and subsidies, weather and expectations about future prices also matter.

When something other than price changes, the whole supply relationship shifts. A drought that destroys crops reduces supply at every price. A new, cheaper production method increases supply at every price. Together with demand, supply determines market prices.