SUPPLY

PRESENTED BY
DHARA DINESH MEHTA DEEPIKA MAHESH GOHIL NEHA VINOD JUWALE MINI SHARMA RUPALI SHELAR NEERAJ GIRADKAR M1134 M1120 M1125 M1154 M1155 M1118

Supply

What is supply? Definition

Determinants of supply
Availability of inputs Price of goods Future price expectation Export and import Taxation and Subsidy Abnormal circumstances Business expectation Related goods price State of technology Government policy Cost of production

Law of supply
The quantity of a commodity supplied is directly related to its price, other things remaining constant. Marshall Establishes a functional relationship between price of a commodity & its quantity supplied in the market.

Symbolically the law of supply can be stated as: Sx=f(Px)

Where: S= Supply of a commodity f= function of P= Price of a commodity x= given commodity

Explanation of the Law of Supply.

Supply Schedule Supply Curve

Assumptions of the Law of Supply

The price of substitutes remains unchanged.
No change in production cost. Government policies on taxation remains unchanged. No change in weather and climatic conditions.

Exceptions to the Law of Supply

Need for urgent funds. Changes in fashion. Perishable goods.

Period of recession.

Price elasticity of supply

Definition

Price Elasticity of Supply (Es) = % Change in Qs % Change in Price

Types of price elasticity of supply

Relatively elastic supply where Supply elasticity > 1

Perfectly elastic supply where Supply elasticity = infinity

Relatively inelastic supply, Perfectly inelastic supply, where supply elasticity is < 1 where supply elasticity = 0

Unit Elasticity of Supply, where Supply elasticity = 1

Elasticity over Time

Economists have identified three distinct time periods : The market period The short run The long run

Determining the price of commodity with the help of market forces of demand and supply
According to law.. Demand is inversely proportional to price of product

Continued
According to law.. Supply is directly proportional to the price of product

Continued.
When an exchange price is agreed upon, it is called equilibrium price

Continued

Excess demand price hikes Excess supply price falls

Effects of Change in Demand and Supply on Price

Assuming price remains constant while drawing demand and supply curves, other factors changes This will shift the demand and supply curves and a new equilibrium position will be obtained. It will affect the equilibrium price and quantity also.

Initial Demand curve: D Initial Supply curve: S Initial Equilibrium Point : E Initial Equilibrium Price and Quantity: OP and OQ respectively.
Due to Rightward shift of demand curve: New Demand Curve : D New Equilibrium Point : E New Equilibrium Price : OP New Equilibrium Quantity : OQ

o o o o

Increase in Demand (Rightward Shift of Demand Curve)

Thus Rightward shift of demand curve: o Increases the Equilibrium Price o Increases The Equilibrium Quantity

Initial Demand Curve: D Initial Supply curve: S Initial Equilibrium Point : E Initial Equilibrium Price and Quantity: OP and OQ respectively.
Due to Rightward shift of Supply Curve : New Supply Curve : S New Equilibrium Point : E New Equilibrium Price : OP New Equilibrium Quantity : OQ

o o o o

Increase in Supply (Rightward Shift of Supply Curve)

Thus Rightward shift of Supply curve: o Decreases the Equilibrium Price o Increases The Equilibrium Quantity

Summarization:
Demand and supply shifts If demand rises The demand curve shifts to the right The demand curve shifts to the left The supply curve shifts to the right The supply curve shifts to the left Effect on price and quantity Both price and quantity increases Both price and quantity falls Price falls but quantity increases Price increases and quantity decreases

If demand falls

If supply rises

If supply falls

Simultaneous Shifts of Supply and Demand

In the real world, several forces act simultaneously on supply and demand. In such situations, the demand and supply curves may change their positions at the same time. In that case, the new equilibrium price and the new equilibrium quantity may be greater than, equal to or even less than the initial equilibrium levels.

Initial Demand Curve: D Initial Supply curve: S Initial Equilibrium Point : E Initial Equilibrium Price : OP

Due to Rightward shift of both Demand and Supply Curves by same amount: o New Demand Curve : D o New Supply Curve : S o New Equilibrium Point : E Thus Rightward shift of both Demand and Supply curve: o Has no effect on the Price of the commodity.

Shift in both Demand and Supply

 Here, the shift of demand curve is greater than the shift in supply curve.
New Equilibrium position : E Price changes from P to P, thus Price is increased. Quantity changes from Q to Q, thus quantity is also increased. As compared to increase in price, the proportion increase in quantity Supplied is more.

Shift in both Demand and Supply

Summarization
Demand and Supply shifts simultaneously Effect on price and quantity

Demand curve shifts to the right and Supply Curve shifts to the left

Price increases more as compared to proportionate increase in quantity.

Shifts in Demand and Supply Shift in Demand Curve is Curves Shift in Supply greater than are equal Curve

NoQuantityin Price and Quantity Change increases more as compared to proportionate increase in price.

Summary
Supply is an important factor that affects the price of a commodity. As price increases, supply also increases. An equilibrium price and quantity is determined in the marketplace through the interaction of buyers and sellers. Elasticity of supply tells us how much quantity supplied changes when there is a change in price. The more the quantity changes, the more the elastic the goods or services. Products whose quantity supplied does not change much with a change in price are considered as inelastic.

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