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SUPPLY

Willing to offer to the market at various prices during period of time

Able to offer to the market at various prices during period of time

SUPPLY

What firm offer for sale, not necessarily to what they succeed in selling

Is a flow i.e. as per unit of time, per day, per week, or per year

DEFINATIONS OF SUPPLY:
Thomas:

The supply of good is the quantity offered for sale in a given market at a given time at various prices
Samuelson:

Supply refers to the amount of a good that producer in a given market desire to sell, during a given time period at various prices, ceteris paribus

DETERMINANTS OF SUPPLY:
Price of good
Price of related good Price of the factors of production State of technology Government policy

Other factors

1. Price of the good:

..

o Ceteris paribus i.e. other things being equal o Relative price of the good o Quantity supplied o This happens because goods are produced by the firm to gain profits o Profits rises when price rises

..
2. Price of related good:
Rise in price of the related goods make it more profitable for the firm to produce and sell

Price of related good(y) Quantity supplied of other good(x)

Changes in price of factor of .. production Changes price ofprofitability 3. in relative factor of of different lines of production Producers shift from one line to another Supplies of different commodities change

production:

 4. government policy: .. o Imposition of commodities taxes increase the cost of production o Subsidies reduces the cost of production which increases firms supply 5. State of technology 6. Other factors o Govt. industrial & foreign policies o Goals of the firm o Market structure, etc.

LAW OF SUPPLY:
1 DOOLEY:

o Law of supply states that other things being equal, the higher the price, the greater the quantity supplied or the lower the price, the smaller the quantity supplied
2 Lipsey:

o The law of supply states that other things being equal, the quantities of any commodity that firm will produce & offer for sale, is positively related to the commodities own price, rising when price rises & falling when price falls

LAW OF SUPPLY:
o There is a direct relationship between price & quantity supplied: o Quantity supplied rises as price rises, other things constant o Quantity supplied falls as price falls, other things constant o The law of supply is accounted for by 2 factors: o When price rises, firms substitutes production of one good for another o Assuming firms cost are constant, a higher price means higher profits

SUPPLY SCHEDULE:
o Supply schedule is a series of quantities which a producer would like to sell per unit of time at different prices
o Two aspects of supply schedule: Individual supply schedule Market supply schedule

INDIVIDUAL SUPPLY
It is defined as a table which shows quantities of a given commodity which an individual producer will sell at all possible prices at a given time
Price (rs) (per kg) 1

SCHEDULE:
Quantity supplied (kg) 10

30

50

70

80

MARKET SUPPLY SCHEDULE:

o It is defined as the quantities of a given commodity which all producers will sell at all possible prices at a given moment of time o In a market there are many producers of a single commodity o By aggregating the individual supply, the market supply schedule is constructed

Price of commodity x (in RS)

100 200 300 400

Supply by A
40 60 65 80

supply by B
50 70 80 100

MARKET SUPPLY (units) 40+50 = 90 60+70 = 130 65+80 = 145 80+100 = 180

o It indicates that when price of x is RS 100 per unit, As supply is of 40 units and that of B is of 50 units o Thus the market supply is 90 units o As the price increases, quantity supplied increases

SUPPLY CURVE:
o A supply curve is a locus of points showing various price quantity combinations of a seller o It shows the direct relationship between price and quantity supplied o It slopes upward to right

EXCEPTION TO LAW OF SUPPLY:

1. Supply of labour: o If we take the supply of labour at very high wages, we may find that the supply of labour has decreased instead of increasing 2. Agricultural products: o Since the production of agricultural products cannot be increased beyond a certain limit, the supply cannot be increased beyond this limit even on increase in their prices

 3. Artistic goods: Supply of artistic goods cannot be increased or decreased easily 4. Goods of auction: Supply of goods of auction is limited as such cannot neither be increased nor decreased 5. Hope of change in the prices of commodities in near future: If the price of commodity is on rising pace, then the supply of such commodities decreases as producers and sellers will like to store this commodity & vice - versa

EXPANSION AND CONTRACTION IN DEMAND:

EXPANSION
Qs price Upward movement along the supply curve

CONTRACTION
Qs price Downward movement along the supply curve

INCREASE AND DECREASE IN SUPPLY:

Q supplied ( at all prices)due to change in other factors INCREASE Rightward shift

Q supplied ( at all prices) due to change in other factors DECREASE Leftward shift

DEGREES OF PRICE ELASTICITY OF SUPPLY:

Perfectly elastic E=
More than unit elastic (elastic) E>1

Less than unit elastic ( inelastic) E<1

Perfectly inelastic
E=0

Unit elastic E=1

DETERMINANTS OF PRICE ELASTICITY OF SUPPLY:

1. NATURE OF COMMODITY:

PERISHABLE
Inelastic supply

DURABLE
Elastic supply

DETERMINANTS OF PRICE ELASTICITY OF SUPPLY:

2. TIME:

Very short period

Inelastic

Short period
Elastic

Long period
Highly elastic

DETERMINANTS OF PRICE ELASTICITY OF SUPPLY:

3. PRODUCTION TECHNIQUE:

NOT COMPLICATED
COMPLICATED
Inelastic supply Elastic supply