Demand and supply are the most used words in economic analysis. And, for good reason, they provide a good off-the-cuff for any economic question. Price theory answers the question of interaction of demand and supply to determine price in a competitive market. Supply is a positive function of price.
Supply is the willingness and ability of producers to make a specific quantity of output available to consumers at a particular price over a given period of time. Individuals control the inputs, or resources, necessary to produce goods. In one sense, supply is the mirror image of demand. Individuals’ supply of the factors of production or inputs to market mirrors other individuals’ demand for these factors. For example, if we want to rest instead of weeding the garden, we hire someone: we demand labour. For a large number of goods, however, the supply process is more complicated than demand.
For a large number of goods, there is an intermediate step in supply. Individuals supply factors of production to firms. Firms are organisations of individuals that transform factors of production into consumable goods. For produced goods, supply depends not only on individual’s decision to supply factors of production; it also depends on firms’ ability to produce – to transform these factors of production into consumable goods.
The supply of non-produced goods is more direct. Individuals supply their labour in the form of services directly to the goods market. For example, an independent contractor may repair a washing machine. The contractor supplies his labour directly.