In a broad sense, supply analysis is a system of input and output equations used to determine supply responses to changing circumstances by producers (including households). Supply analysis takes into account changes in both output supply and input/factor demand. Supply analysis is central to policy decisions in that it helps us understand the impact that alternative policy packages may have on the producers themselves. Through the changes it induces in commodity supply and in factor demand, the analysis of production response is an essential component of models that seek to explain market prices, wages and employment, external trade and government fiscal revenues.
Supply analysis can be used to determine the impact of changes in product and factor prices, in technology, and in access on factor demands (including labor), production, marketed output, aggregate supply, and incomes. Generally, it can be used to analyze the impact on production of the removal of barriers to access or other changes in markets. Supply analysis, in the employment context, deals with key staffing questions related to current staffing levels in an organization.
