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Supply

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  • 1. supply  Supply refers to the quantities of a product that suppliers are willing and able to sell at various prices per period of time , other things being equal.
  • 2. The law supply “The law of supply states that, other things remaining the same, the quantity of any commodity that firms will produce and offer for sale rises with rise in price and falls with falls with fall in price.”
  • 3. The supply curve
  • 4. DETERMINANTS OF SUPPLY Price of the commodity:- The most important determinant of supply of commodity is its own price. Given other things, larger quantity will be supplied at a higher price and smaller at a lower price.  Goals of the firm:- Primary objective of the firm is to make profit. Higher is the profit from the sale of a commodity, higher will be the amount supplied and vice versa.  Input prices:- If producers have to pay high price for factors of production, cost of production will be high. Given the price, higher cost of production reduces profit and lead to lower amount being offord. 
  • 5. DETERMINANTS OF SUPPLY Price of other goods:- If price of other commodities are rising, producers will find it more profitable to supply other goods and as a result the supply of commodity in question will fall.  Technique of production:- Introduction of any new machine, method of production etc will reduce the cost of production and therefore increase profit leading to more supply.  Govt. policy:- Imposition of heavy indirect tax will lead to rise in the cost of production and thereby fall in supply. If there is reduction in taxes or provision of subsidy, the overall supply will rise. 
  • 6. DETERMINANTS OF SUPPLY Expectation of producers:- If the producers expect an increase in price in future, then they will supply less today and offer it at higher price in future and vice versa.  Availability of transport and communication:- An improvement in the transport and communication facilities will expand the size of market and motivate producers to produce and supply more. 
  • 7. CAUSES OF SHIFTS IN THE SUPPLY CURVE  The supply curve is upward sloping.  There are TWO types of change in supply;  1. Movement ALONG the supply curve 2. SHIFTS in the supply curve
  • 8. CAUSES OF SHIFTS IN THE SUPPLY CURVE A movement ALONG the supply curve  A movement along the supply curve is caused by a change in PRICE of the good or service. For instance, an increase in the price of the good results in an EXTENSION of supply (quantity supplied will increase), whilst a decrease in price causes a CONTRACTION of supply (quantity supplied will decrease).
  • 9. CHANGE IN QUANTITY SUPPLIED S C $3.00 A rise in the price results in a movement along the supply curve. A 1.00 Quantity 0 1 5
  • 10. CAUSES OF SHIFTS IN THE SUPPLY CURVE A  SHIFT in the supply curve A shift in the supply curve is caused by a change in any non-price determinant of supply. The curve can shift to the right or left. A rightward shift represents an increase in the quantity supplied (at all prices) S1 to S2, whilst a leftward shift represents a decrease in the quantity supplied (at all prices). S1 to S3.
  • 11. Shifts in supply curve
  • 12. CAUSES OF SHIFTS IN THE SUPPLY CURVE  The movements can be caused by the following; 1. Change in costs of production - if the costs of production increase then the potential profit will fall. This will cause producers to look at alternative goods to produce. Therefore, an increase in the costs of production will cause a leftward shift in the supply curve. 2. Role of technology - if the degree of technology employed in production increases then firms will be able to make more goods with their given level of inputs (factors of production). Therefore, an improvement in technology causes the supply curve to shift to the right
  • 13. CAUSES OF SHIFTS IN THE SUPPLY CURVE     Changes in Population An increase in population increases the supply of labor; a reduction lowers it. Labor organizations have generally opposed increases in immigration because their leaders fear that the increased number of workers will shift the supply curve for labor to the right and put downward pressure on wages. Changes in Expectations One change in expectations that could have an effect on labor supply is life expectancy. Another is confidence in the availability of Social Security. Suppose, for example, that people expect to live longer yet become less optimistic about their likely benefits from Social Security. That could induce an increase in labor supply.
  • 14. THANK YOU… BY- SUNIT CHAKRABORTY