Supply function explains the relationship between two variables namely supply and the factors that determine the supply. It states the arithmetical relationship between the supply of a commodity and the various factors determining supply.
Supply Function With Formula
Supply function is explained with the help of the following formula:
Sa= F (Pa, Px, Py, Pz, Pf)
Where
- Sa denotes the supply of commodity ‘a’
- Pa denotes the prices of commodity ‘a’.
- Px, Py and Pz denote the prices of the factors of production.
- Pf stands for the state of Technology.
The above equation explains that the supply of a commodity is the function of its price, prices of factors of production and state of technology. The supply of a commodity changes with a change in the above factors.
The supply function is highly useful for the producers. It helps the producers to estimate the changes in supply that can be brought by changing the different factors of production and by adopting new methods of production. It also enables them to supply the different quantities of output at such prices that provide maximum profit for them. Hence, supply function has great significance for the producers.
