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Supply

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  • 1. AMITABH PATNAIK
  • 2. DEFINITIONTHE AMOUNT OF COMMODITY WHICH THE SELLER(OR PRODUCER) ARE ABLE AND WILLING TO OFFER FOR SALE AT A PARTICULAR PRICE, DURING CERTAIN PERIOD OF TIME
  • 3. Firms and Households:The Basic Decision-Making UnitsA firm is an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.An entrepreneur is a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.Households are the consuming units in an economy.
  • 4. Input Markets and Output Markets:The Circular Flow The circular flow of economic activity shows how firms and households interact in input and output markets.
  • 5. Product or output markets are the markets in which goods and services are exchanged.Input markets are the markets in which resources—labor, capital, and land—used to produce products, are exchanged.
  • 6. Input Markets and Output Markets:The Circular Flow Goods and services flow clockwise. Firms provide goods and services; households supply labor services. • Payments (usually money) flow in the opposite direction (counterclockwise) as the flow of labor services, goods, and services.
  • 7. Supply in Product/Output Markets • Quantity supplied AMITABHS SUPPLY represents the number of units of a product that a firm SCHEDULE FOR would be willing and able to SOYBEANS offer for sale at a particular QUANTITY price during a given time SUPPLIED period. PRICE (THOUSANDS (PER OF BUSHELS • A supply schedule is a table BUSHEL) PER YEAR) showing how much of a Rs. 1 0 product firms will supply at 1.75 10 different prices 2.25 20 3.00 30 4.00 45 5.00 50
  • 8. Price and Quantity Supplied:The Law of Supply AMITABHS SUPPLY SCHEDULE FOR 6 SOYBEANS 5 QUANTITY Price of soybeans per bushel (r 4 SUPPLIED 3 PRICE (THOUSANDS (PER OF BUSHELS ) 2 BUSHEL) PER YEAR) 1 Rs. 1 0 0 1.75 10 0 10 20 30 45 50 Thousands of bushels of soybeans 2.25 20 produced per year 3.00 30 4.00 45 5.00 50
  • 9. Price and Quantity Supplied:The Law of Supply The law of supply states that there is a positive 6Price of soybeans per bushel (rs) relationship between 5 price and quantity of a 4 good supplied. This means that supply 3 curves typically have a 2 positive slope. 1 0 0 10 20 30 40 50 60 Thousands of bushels of soybeans produced per year
  • 10. Determinants of SupplyPRICECOST OF PRODUCTIONSTATE OF TECHNOLOGYFACTOR PRICE & THEIR AVAILABILITYPRICE OF OTHER PRODUCTTRANSPORT CONDITIONGOVERNMENT’S POLICYNATURAL CONDITIONS
  • 11. ASSUMPTION UNDERLYING THE LAW OFSUPPLYCOST OF PRODUCTION IS UNCHANGEDNO CHANGE IN TECHNIQUE OF PRODUCTIONFIXED SCALE OF PRODUCTIONGOVERNMENT POLICIES ARE UNCHANGEDNO CHANGE IN TRANSPORT COSTNO SPECULATIONPRICE OF OTHER GOODS ARE HELD CONSTANT
  • 12. Shift of Supply VersusMovement Along a Supply Curve A higher price causes higher quantity supplied, and a move along the demand curve. • A change in determinants of supply other than price causes an increase in supply, or a shift of the entire supply curve, from SA to SB.
  • 13. Shift of Supply Curve for SoybeansFollowing Development of a New Seed Strain  In this example, since the factor affecting supply is not the price of soybeans but a technological change in soybean production, there is a shift of the supply curve rather than a movement along the supply curve • The technological advance means that more output can be supplied for at any given price level.
  • 14. Shift of Supply VersusMovement Along a Supply Curve Change in price of a good or service leads to Change in quantity supplied (Movement along the curve).
  • 15. Shift of Supply VersusMovement Along a Supply Curve Change in costs, input prices, technology, or prices of related goods and services leads to Change in supply (Shift of curve).
  • 16. Market EquilibriumMarket equilibrium is the condition that exists when quantity supplied and quantity demanded are equal.At equilibrium, there is no tendency for the market price to change.
  • 17. Market Equilibrium Only in equilibrium is quantity supplied equal to quantity demanded. At any price level other than P0, such as P1, quantity supplied does not equal quantity demanded
  • 18.  Excess demand, or shortage, is the condition that exists when quantity demanded exceeds quantity supplied at the current price. When quantity demanded exceeds quantity supplied, price tends to rise until equilibrium is restored
  • 19. Excess Supply  Excess supply, or surplus, is the condition that exists when quantity supplied exceeds quantity demanded at the current price.  When quantity supplied exceeds quantity demanded, price tends to fall until equilibrium is restored
  • 20. Changes in Equilibrium Higher demand leads to higher equilibrium price and higher equilibrium quantity.
  • 21. Changes in Equilibrium Higher supply leads to lower equilibrium price and higher equilibrium quantity.
  • 22. Changes in Equilibrium Lower demand leads to lower price and lower quantity exchanged.
  • 23. Changes in Equilibrium Lower supply leads to higher price and lower quantity exchanged.
  • 24. Relative Magnitudes of Change• When supply and demand both increase, quantity will increase, but price may go up or down.
  • 25. Relative Magnitudes of Change• The relative magnitudes of change in supply and demand determine the outcome of market equilibrium.
  • 26. University QuestionExplain the relationship between price and quantity demanded of a commodity. OrDescribe the price or demand relationship with suitable example.Why does the normal demand curve slope downward? Can there be an upward rising demand curve? Explain with example.Explain law of supply . What are the determinant of supply.

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