Demand and supply are key concepts in economics, according to some people they're what make the world go round... but just what is "supply" and what does it mean for economics?

Basically, supply is the amount of goods and services produced. There can be individual supply from companies (the amount of goods and services a single company produces) or national supply (the amount of a particular good or service a country supplies) or even international supply (the total amount of a particular good or service the world as a whole produces).

The Basics of Supply

The basic concept of neoclassical economics, the founding school of thought on economics, is that in order for there to be equilibrium (for everything to be equal) supply should equal demand. An excess of supply can lead to price reductions as there is more of a good or service than is being demanded thus people have more choice. The opposite is also considered true according to neoclassical economists - an excess of demand will increase the price of goods or services as consumers fight to make their purchases. Price can also influence supply and demand on its own. An increase in price (due to factors such as increased costs of production) will reduce demand and vice versa. An increase in price will also reduce supply: if a good costs more to produce and demand is reduced then supply will eventually reduce in line with this to remove any excess supply and return to a state of equilibrium.

Supply 'Curves'

Economists use "curves" to pictorially represent key theories such as supply and demand. A supply curve is plotted on a basic graph with two axis. The price is plotted on the y axis (vertical) and the quantity supplied is plotted on the x axis (horizontal). As price increases the quantity supplied increases, creating the shape of a vertical line sloping upwards (/) on the graph. Demand is often plotted on the same graph with a downward sloping line (\) that shows as price increases demand decreases. Where these two points cross in the middle (X) is known as the point of equilibrium. The General Equilibrium theory states that once this point is reached there is no incentive to change either supply or demand, unless there is an external factor which changes price or the quantity produced (such as shortage of raw materials), in which case supply and demand will simply 'shift' until they reach a new state of equilibrium.

Exceptions to the Neoclassical Rules of Supply

Not all goods

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