SUPPLYIn general, supply refers to production or stock but in economics all theproduction or stock are not called supply. Only that part of production orstock is called supply which are ready for sale at the market prices at anygiven period of time. the quantity of good offered for sale depend on six majorvariables 1: the price of good itself. 2: the price of input used to produce good. 3: the prices of goods related in production. 4: the level of available technology. 5: expectation of producer, concerning the future price of good. 6: the number of firms or the amount of productive capacity in the industry.
Supply function• Qs=f(P,Pi,Pr,T,Pe,F)• P= price of goods• Pi= income• Pr= price of related goods• T= technology• Pe= price expectation• F= Feature of nature
Law of supply• Shows the relationship b/w price ofa commodity and its quantity supply.• Other thing remaining the same there ispositive relationship between price ofcommodity and its quantity supply.• As price increase quantity supply of acommodity also increase .and as price decreasequantity supply of a commodity also decrease
Law of supply curve/diagrampx qs5 1004 803 602 401 20
Measurement of elasticity of supply• Elasticity of supply of a commodity is the degree of responsiveness of the quantity supplies to changes in price. Like the elasticity of demand, the elasticity of supply is the relative measure of the responsiveness of quantity supplied of a commodity to a change in its price.• The, greater the responsiveness of quantity supplied of a commodity to the change in its price, the greater is its elasticity of supply. To be more precise, the elasticity of supply is defined as a percentage change in the quantity supplied of a product divided by the percentage change in price.
measurement of price elasticity of supply There are two method of measuring price elasticity of supply. 1. proportionate or percentage method. 2. geometric method.
Proportionate or Percentage Method According to this method, price elasticity of supply is measured as under: Price Elasticity of supply(Es) = %Change in Quantity supplied % change in price Or Es = proportionate change in supply Proportionate change in price
Geometric Method This method studies five different situations of `elasticity of supply as under:(i) Es = 1, unitary elasticity: when a straight line upward sloping supply curve starts from the point of origin. in this casepercentage change in quantity supplied is equal to the percentage change in price
(ii) Es >1 , or Greater unitary Elasticity : When a straight line upward sloping supply curve starts from the percentage change in price . than Y-axis. In thiscase , percentage change in quantity supplied is greater than percentage change in price.
(iii)Es<1, or Less that Unitary Elasticity:When a straight line upward sloping curve starts form the X-axis. In this case , percentage change in quantity supplied is less than percentage change in price.
(iv) Es = 0 , or Perfectly Inelastic Supply:It refers to a situation in which there is no change in supply remains unchanged it is a situation in which price has noinfluence on supply. In this case, supply curve is a vertical straight line as given fig.
(V) Es = or perfectly elastic supply :It refers to a situation in which supply is infinite corresponding toa particular price of the commodity . Accordingly, a slightest fall in price causes an infinite change in supply , reducing it to zero . In this case , supply curve is a horizontal straight line .