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Meaning of supply
Difference between supply and stock
Relationship between supply and price
Define the concept of elasticity of supply
locate the determinants of elasticity of supply
Introduction:
Friends after knowing the meaning and purpose of demand and
law of demand, elasticity of demand, know I think you should know what supply
is. Producers are going to produce on the basis of demand only. Goods are
needed to be supplied to meet the demand for the product.
Difference between Stock & Supply:
Like the term 'demand', the term 'supply' is also often misused in the ordinary
language. Supply of a commodity is often confused with the 'stock' of that
commodity available with the producers. Stock 'of a commodity, more or less,
will equal the total quantity produced during a period less the quantity already
sold out. But we know that the producers do not offer whole of their stocks for
sale in the market, A part of industrial produces is kept back in godowns and is
offered for sell in the market when It can fetch better prices, In other words the
amount offered for sale may be less (or at the most in rare circumstances equal
to) than the stocks of the commodity. The term 'supply' shows a relationship
between quantity and price. By supply we mean various quantities of a
commodity which producers will offer for sale at a particular time at
various corresponding prices. In simple words, supply ( like demand )
refers to the quantity of commodity offered for sale at some price during a
given period of time.
LAW OF SUPPLY
Meaning:
It’s different from law of demand. Law of supply explains the
relationship between price of a commodity and its quantity supplied. Price and
supply are directly related. A rise in price induces producers to supply more
quantity or the commodity and a fall Prices, makes them reduce the supply. The
higher is the price of the commodity the larger is the profit that can be earned,
and, thus the greater is the incentive to the producer' to produce more of the
commodity and offer It in the Market. Likewise at lower prices, profit margin
shrinks and hence producers reduce the sale .
Law of supply can be illustrated with the help of a, schedule and supply curve. A
supply schedule is a tabular statement that gives a full account of supply of any
given commodity in a given market at a given time
It states what the volume of goods offered for sale would be at each of a series of
prices. Supply schedule is of two types:
(a) individual Supply schedule,
(b) market supply schedule.
The market supply curve can be obtained by aggregating the individual supply
curves of the commodity.
The market supply curve also shows the same relationship between the price
and the quantity supplied the quantity supplied increases proportionately with the
increase in the/price
Activity
Qs=20p-100
So that at the price Rs. 1O/ per unit quantity supplied equals 20 x 10 - 100=100
at the price Rs 9 per unit 80 units will be supplied; Similarly different quantities
corresponding to different prices can be calculated.
SHIFT IN SUPPLY
Movement along the same supply curve represents contraction or expansion in
supply as a result of a change in the price of a commodity. A shift in supply curve
occurs\ when the producers are wi1ling to offer more or less of a commodity
because of reasons other than the price of the commodity.
For example. An innovation or the discovery of a cheap raw material may result
in increased supplies of a given commodity. Increase in the supply of plastic
footwear in recent years is glaring illustration.
(1 ) Increase in demand also increases the price the quantity sold and purchased
also increases
(2) Fall in demand brings down the equilibrium price and the quantity sold and
purchased also declines.
Increase in Supply.
(1) Shift in the supply curve to the right (increase in supply). brings down the
equilibrium price; the amount sold and purchased increases.
Activity:
I. Mathematically, the effect of the shift in demand can be presented as follows:
Suppose, the original demand equation is Qd=110-lOp and, the original supply
equation is Q.=10p-l00 The equilibrium price and the equilibrium quantity will be
7 and 40 respectively.
(1) If the increase or decrease in the demand and the supply is pf equal
magnitude, then the price at old and new equilibrium will remain equal.
(2) If the increase in the demand is of greater magnitude than in supply, then
the new equilibrium price will be higher than the old equilibrium price, and
vice versa.
(3) If the supply increases in greater proportion than the demand, the new
equilibrium price will be lower than the old equilibrium price.
It may be observed in all the conditions that the price mechanism brings demand
and supply in equilibrium.
QUESTIONS
where p and q are the original price and quantity supplied respectively, and ∆p
and ∆q the change in price and quantity supplied.
This method of measurement of the elasticity of supply can be illustrated as
follows:
Es=2.'75 will mean that if the price of wheat goes up by one per cent supply of
wheat will increase by 2.'75 per cent. The value of elasticity coefficient varies
between zero and infinity. The various results are tabulated below:
Elasticity of Supply
Quantity supplied
Less than unit
changes by a smaller
elastic or inelastic
2. Es<l percentage change
than price.
Slide 1 ___________________________________
___________________________________
supply ___________________________________
Meaning: by supply we mean various ___________________________________
quantities of commodities which producers
will offer for sale at a particular time at
various corresponding prices. ___________________________________
___________________________________
___________________________________
Slide 2 ___________________________________
Supply function
___________________________________
Sn = f ( Pn,
Pn, Pr, F, T, G)
Where Sn = supply of a commodity ___________________________________
Pn = price of a commodity
Pr = price of related goods ___________________________________
F = factors of productions
T = technical know how
G = goals or general objective of
___________________________________
producers
___________________________________
___________________________________
Slide 3 ___________________________________
Determinants of supply
___________________________________
Price of the commodity
Price of related goods
Prices of the factors of production
___________________________________
Technical know how
Goals or general objective of the firm ___________________________________
Natural factors
Taxation policies
Future expectation of rise in price ___________________________________
Means of transportation and communication
___________________________________
___________________________________
Slide 4 ___________________________________
Law of supply
___________________________________
it explains the relationship between price of
a commodity and its quantity supplied. ___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
Slide 5 ___________________________________
Assumptions of law of supply
___________________________________
Based on the assumption that there is direct
relationship between price and supply. ___________________________________
i.e. with increase in price supply is
increasing and with decrease in price ___________________________________
supply is decreasing.
___________________________________
___________________________________
___________________________________
Slide 6 ___________________________________
Supply schedule
___________________________________
a supply schedule is a tabular statement
that gives a full account of supply of any ___________________________________
given commodity in a given market at a
given time ___________________________________
___________________________________
___________________________________
___________________________________
Slide 7 ___________________________________
Supply curve
___________________________________
supply curve exhibits the information
graphically instead of arithmetically. It ___________________________________
shows the relationship between price and
the quantity supplied. ___________________________________
___________________________________
___________________________________
___________________________________
Slide 8 ___________________________________
Shift in supply curve
___________________________________
A shift in supply curve occurs when the
producers are willing to offer more or less ___________________________________
of a commodity because of reasons other
than the price if the commodity. ___________________________________
It is also known as the increase or decrease
in supply.
___________________________________
___________________________________
___________________________________