I've got a question for economics that I need help with, here is the question:

"What is meant by the supply side of economics? Define the term ‘supply’ in the context of economics and explain the factors from which it is derived."

I have answered it though but I don't understand this part in the question "Define the term 'supply' in the context of economics and explain the factors from which it is derived."

If you could help me with that, I would appreciate it.

Here is what I have answered already: "Supply-side of economics is a theory that is built upon the concept that an increase in goods and services will increase output while also lowering prices and lead to economic growth. When companies overproduce goods, they create excess inventory which results in the prices falling and consumers buying more to offset the excess supply. It is called “supply-side economics” because it focuses on how and what the government is able to do to increase the overall supply of goods and services created in the economy."

  • $\begingroup$ It has everything to do with capital and labor. I will create a post later today. The more productive we are are making goods and service with the use of capital and labor will result in more output and lower prices will follow. $\endgroup$
    – Mike J
    Jun 8, 2020 at 16:57
  • $\begingroup$ Usual phrasing is “supply side economics”, not “supply side of economics.” $\endgroup$ Jun 9, 2020 at 1:00
  • $\begingroup$ (1) There is a phrase called "supply-side economics" (used more by journalists than by economists). (2) There might be another phrase "the supply side of economics" but I'm not sure what that is (nor that economists widely agree on what this means). It is up to your teacher to clearly define what phrase #2 means. (My guess though is that your teacher or whoever wrote this question is also confused about what she means.) $\endgroup$
    – user18
    Jun 9, 2020 at 2:52
  • $\begingroup$ @BrianRomanchuk oh my bad, thanks for correcting me. $\endgroup$
    – MBA
    Jun 9, 2020 at 16:28

1 Answer 1


The principle supply-side policies that are currently advocated are reductions in tax rates on labor and capital income. Its claimed that lower tax rates on wages, interest, dividends and corporate income will increase output by increasing the incentives to work, increasing in the supply of labor.


While supply-side economists expect a little government regulation of the free market, demand-side economists expect a more active government.

Supply-side works by giving incentives to businesses to expand. Deregulation removes restrictions on their growth.

A corporate tax cut gives businesses more money to hire workers, invest in capital equipment, and produce more goods and services.

An income tax cut increases the dollars per hour worked. It boosts workers' incentive to remain employed and creates more labor.

the supply-side premise is that an increase in supply (i.e. production of goods and services) will increase output and lower prices.

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