SUPPLY
Definition
• Seller
• able to
• willing to offer
• sale
• Different prices per unit of time
Supply Vs Stock
Supply Stock
Quantity of commodity actually brought Exists in the market that can be offered
into market for sale for sale at a short notice
Commodity nature
Perishable Supply = Stock
(Fruits. Vegetables, Fish)
Nature of Price
Low compared to cost withhold entire or part of stock
Favorable price Dispose off large quantities
Entire stock of his commodity
Law of Supply
• Quantity of a good offered or willing to offer
by the producer for sale increases with the
increase in market price and decreases with
the decrease in market price, all other things
remaining constant
• Supply curve
– Slope upwards from left to right
– Can be a straight line also
Market Supply
Price Quantity supplied by Market supply
Rs A B C A+B+C
10 40 60 80 180
8 30 45 60 135
6 22 33 44 99
4 15 23 30 68
2 10 15 20 45
Supply function
• Relationship between supply and its factors
• Dependant variable
• Independent variable
– Qs = f (P, Prg, S)
P = Price
Prg = Price of related goods
S = number of producers
Determinants of Supply
Factors
Price of the product Quantity supplies changes with price
Technological changes Less cost – willing to supply more
Resource supplies and Production Increase in cost results in less production – less
cost supply
(raw materials, wage, energy)
Tax or subsidy - Important for govt. Increase in tax – increase in cost – decrease in S
to control supply Subsidy – Supply more
Increase in tax – cigarettes – reduce the supply
Subsidy- to increase the supply of fertilizers
Expectation of prices in future Decrease in supply?
Increase in supply?
Price of other goods Y Y relationship
Several options to produce
Money is limited
Switch over from A to B
Number of producers in market Positively correlated with supply
Supply curve
• Graphical representation of the supply
function
So far,
• Supply
• Law of Supply
• Supply function
• Supply schedule
• Market supply
• Determinants of supply
• Supply Vs Stock
Movement along the Supply curve
Shift in Supply curve / Change in supply
Factors affecting shift in supply
Factors
Technological changes Less cost – willing to supply more
Resource supplies and Production Increase in cost results in less production – less
cost supply
Factor prices (raw materials, wage, energy)
Tax or subsidy - Important for govt. Increase in tax – increase in cost – decrease in S
to control supply Subsidy – Supply more
Increase in tax – cigarettes – reduce the supply
Subsidy- to increase the supply of fertilizers
Expectation of prices in future Decrease in supply?
Goals of firm Increase in supply?
Price of other goods Y Y relationship
Several options to produce
Money is limited
Switch over from A to B
Number of producers in market Positively correlated with supply
Transport, Climatic change, Political
changes
Elasticity of supply
• The extent to which quantity supplied of a
commodity changes with the given change in
price refers to Es
Perfectly elastic supply Curve is horizontal
Firm will supply any amount of good at Rs. 4 per unit
If the price falls below Rs. 4 i.e. Rs. 3.5, supply fall to zero
Price is too low to sustain any producer in the market
Elasticity of supply is infinite
Perfectly inelastic supply Seller sells a fixed quantity for sale
Price increase to 8?
Quantity supplied is totally unresponsive to changes in price
Supply curve is vertical
Es = 0
Unitary elastic supply Percentage change in price brings about same
percentage change in quantity supplied of a good
Doubling the price of product?
Doubles the quantity supplied
Es =1
Elastic supply Percentage change in price of good brings a larger
percentage increase in supply of a good
4 becomes 5 (25 % increase)
QS increase from 40 to 80 (100 % increase)
Es >1
Flatter slope
Inelastic supply Steeply sloped
Equilibrium price
Total demand Total supply
Price / 100 eggs
(in Numbers) (in Numbers)
130 450 250
140 400 300
150 350 350
160 300 400
170 250 450
• Market price
• Normal price
