The offer function shows how many products the manufacturers are offering in relation to the price. The supply function thus represents the relationship between the quantity produced and the price on the market. The supply quantity is a function of the price – the supply depends on the price. At higher prices, more suppliers offer more products on the market. Due to the resulting oversupply, the prices fall and suppliers decide against production again, so that the supply decreases.
In the following lesson you will learn everything about the offer function. Finally, you will find some exercises that will help you to consolidate the knowledge you have learned.
- Synonyms: supply curve
- English: supply function
Why is the quotation function important?
The offer function represents the functional relationship between offer and price. It is therefore about the dependence of the offer on the price development.
In economics, the supply function is used to explain why an offer is developing in a corresponding direction. The price is used here to explain when the offer increases or decreases.
The offer function
According to bittranslators.com, the offer function shows how many products the manufacturers are offering at a certain price. It is therefore about the relationship between price and offer. The connection between supply and price is due, among other things, to the fact that incentives for companies increase if a higher price can be achieved.
Graphical representation of the offer function
The supply function is displayed using the supply curve. One axis shows the quantity of the supply, while the other axis shows the price. The supply curve now shows how the supply changes when the price rises or falls.
If the supply curve shows a horizontal straight line, it is a question of a price-elastic supply of goods. It doesn’t matter what the price is. The offer does not change.
The possible connections between supply and price
Two different causal relationships are conceivable for the supply function:
- Increasing supply
- Falling supply
If the supply increases, this is basically due to a higher price. Companies can get a higher price for a product. As a result, more and more companies are offering the product or companies are producing more goods.
The price of refillable metal bottles is increasing. Companies decide to produce more metal bottles as demand is high due to increased environmental awareness and higher prices can be obtained.
If the supply goes down, it is often due to a lower price. Low prices mean that production is less lucrative for companies. As a result, companies choose other goods and focus on a different market.
The different functions
The offer function is conceivable in different variants. A common subdivision is made into:
- short-term offer function
- long-term supply function
Short-term offer function
The short-term supply function aims to represent the current status. This variant shows how many goods the individual companies offer. In the short-term perspective, the above-mentioned interrelationship between rising prices and increasing supply does not always apply. Rather, in particular products that require a long production process cannot be represented in such a simple manner. The short-term supply curve then runs vertically.
Airbus is one of the leading companies in aircraft construction. The construction of a conventional Airbus takes several months. If the price goes up, Airbus cannot immediately increase the supply. In the short term, the offer remains the same, despite the higher price. Thus the supply curve is vertical.
Long-term offer function
In contrast, the long-term supply function also includes market exits and entries. In addition, products with a long production time are also open to the offer function. The causal relationship is evident in the long supply function.
The levels of the supply function
In addition, the supply function is divided into different levels.
The presentation of the offer function is conceivable in the following areas:
The supply function at the company level merely represents the connection between supply and price in a company. All other actors are left out.
Flugzeugbau Fischer GmbH tries to open up market shares in aircraft construction. If the price increases by 10%, production should increase by 20%.
The offer function then represents the relationship between the Flugzeugbau Fischer GmbH in terms of price and offer. As shown, nothing changes with the short-term offer function. After all, it takes time for the planes to be completed.
Market level / branch level
In contrast, the supply function also relates to a specific industry or the entire market. With the help of the offer function it is z