Supply Supply is the quantity of a commodity that the producer is writing to sell in the market ata given price in given period of timeFeatures :- (i) Supply is a desired quantity of commodity which a producer is willing to sell not the actual quantity of commodity which the producer is selling in the market. (ii) Supply is always expressed in terms of price. (iii) Supply is a flow because it is measured over a period of time.Determinants / Factors :- (i) Price of the commodity :- Price & the quantity of the commodity are in direct relationship between each other because the main aim of the producers is to maximize the profit that is why he sells more at higher prices & lesser at low prices. (ii) Price of related goods :- Supply of commodity also depends upon price of related goods. Eg : Substitute goods Producers always have a tendency to, shift over to substitute goods in case their prices are higher than the price of the commodity sold by the producer. (iii) Goals of the firm :- There are 3 types of goals of sellers. a) Profit maximization :- In this case, higher is the profit higher will be the amount supplied by the firm & vice – versa b) Sales maximization :- In this case, firms will never think about profit margins & price of the product. They will keep on increasing the supply of product without considering the price c) Risk minimization :- In this case, firms may play safe & produce & supply a smaller quantity of product. (iv) Input price/ factor price/ cost of production :- Input price is known as the price paid for all types of factor of production. In case of high cost of production with given price, profit margin reduces & the supply of the commodity also reduces. On the other hand, with the decrease. In input prices at the given price of the commodity profit margin increases & the quantity supplied also increases. (v) State of technology :- With a better technology efficiency of the producer increases & the output also increases which increases the quantity supplied of the commodity. On the other hand, if there is outdated & inefficient technology used in production the output decreases & supply will also decrease. (vi) No. of producers :- Quantity supplied also depends on the no. of producers. Lesser no of producers lower will be the supply of the commodity. Larger no of producers higher will be the supply of the commodity. (vii) Future expectations regarding change in price :- If higher prices are expected in future lower will be the supply of product at present. On the other hand. If lower prices are expected in future higher will be the supply at present. (viii) Taxes & subsides :- Higher taxes imposed by the govt. will increase the price of the commodity & the cost of production will also be increasing which reduces the profit margin & the supply will also decrease & vice – versa. In case of subsidies, the price of the product reduces and it will reduce the cost of production which increases the profit margin & the supply also increases. (ix) Natural factors :- Natural factors are responsible for the supply of agricultural products. In case of favourable climatic conditions production in agriculture sector will increase & supply also increases on the other hand, it the climatic conditions are
unfavorable eg. Droughts, flood & famine the agriculture will be adversely affected & the supply & production both will be decreased. (x) Means of transport & communication :- Highly developed means of Transport and communication will increase the availability of raw material, labour & other facilities of the production with that output increases & the supply also increases. (xi) Supply Function :- Supply function is the functional relationship between quantity supplied of a commodity & its determinants Sx = F (Px, Pr, T, G T&S, G ……………….) Law of supply :- It states other things being equal supply of a commodity changes directly with the change in its price. Main assumption of law of supply is cetris paribus i.e. other things remaining the same.Other assumption :- 1. Price of related goods should remain same 2. Goal of the firm should not change. 3. Input prices should remain same. 4. Taxation policies should remain sameSupply schedule: - is a table which shows various quantity of commodity. Which the producersare willing to produce & sell at various prices during a given period of time.2 Types of Supply schedule :- (i) Individual supply schedule: - is defined as a table which shows various quantity of commodity. which an individual producer offers for sale during a given period of time at, different prices Price Quantity supplied 2 4 4 6 6 8 8 10 10 12 (ii) Market supply schedule :- of a commodity is a table which shows various quantity of commodity that all the firms are willing to supply at each market price during a given period of time Price A B C D Table 2 - 1 2 3 6 4 1 2 3 4 10 6 2 3 4 5 14 8 3 4 5 6 18 10 4 5 6 7 22 12 5 6 7 8 26Supply cure is the graphic presentation of Supply schedule It is of two types :Individual Supply curve :- is defined as the curve which shows various quantity of given commoditywhich an individual producer is willing to supply at different given prices during given period of time.
Y S Price 10 8 6 4 2 S O 2 4 6 8 10 12 X Qty (i) Market supply curve :- is a cure which shows various quantity of a commodity. Which all the producers are wiling to & sell at different price during the given period of time. Y AB C D 12 5 5 5 5 Price 10 T.S. S 8 6 4 2 S O 2 4 6 8 10 12 14 16 18 20 22 24 26 X QtyReasons for supply curve moving upwards :- 1. Price & quantity relationship :- Due to a direct relationship between price & quantity supplied supply curve is upward sloping. It shows with the increase in the price the quantity supplied increases & with decrease in the price the quantity supplied also decreases. 2. Entry of new firms :- In case of lesser no. of firms supply of the commodity. will be less/ low. If there is increases in the no of firms in the market the quantity supplied also increases. This shows a direct relationship between no. of firms & quantity supplied in the market due to which we have an upward sloping supply curve. 3. Goal of earning higher profit :- In case of increase. in cost of production profit margin of the producer decreases thus quantity supplied of the commodity also decreases. On the other hand with decrease in cost of production profit margin increases thus quantity
supplied of the commodity also increases which shows upward movement due to direct relation between profit & quantity supplied. There are 2 exceptions to law of supply 1. A vertical straight line supply curve // to Y- axis :- It happens in the case of highly perishable commodity. supply for which cannot he increased or decreased due to their highly perishable nature for example- fish, milks and milk products, leafy vegetables etc. Y S Price P3 P2 P1 P S O Q X Qty 2. Backward sloping supply curve :- This type of supply curve might occur in the case of Labourers in terms of no of hours worked. In this case to some extent supply of Labourer increases with increase in the wages but after a certain point supply of Labour starts decreasing even if the wages are increasing? This shows after a certain wage- level Labourers like to enjoy more leisure than to do work. Thus this peculiar Nature of them gives a backward bending supply curve which is an exception to the law of supply. S Y Wages W5 W4 W3 W2 W1 O X Laboures L5 L1 L2 L3Movement along the Supply curve & shift of the Supply curve.
1. Movement along the Supply curve OR change in quantity supplied :- Change in quantity supplied refers to a movement along the same supply curve. due to change in the price of the commodity. There are two types of movement of it. a) Extension b) Contraction a) Extension OR Expansion of supply :- refers to increase in quantity supplied due to rise in the price of good. It is an upward movement on the same supply cure b) Contraction :- it refers to the decrease in quantity supplied due to fall in the price of the good. It is a downward movement on the same supply curve Y SPrice P3 Extension P1 P2 S Contraction O Q2 Q1 Q3 X Qty 2. Change or shift of the Supply curve :- Change in supply means change in total supply, shift of supply curve take place due to change in the factors other than product price. There are 2. Types of movements in this a) Increase b) Decrease a) Increase :- In a shift of supply curve a new supply curve is drawn. When the supply of a commodity increases. due to favorable changes in factors other than the price of the product it is called increase in supply. In such a case there is a rightward shift of the supply curve which is caused due to the following factors :- • Improvement in technologies • Decrease in cost of production • Change in the goals of the firm • Increase. in the no of firms.
Y S S1 Price P S S1 Increases O Q Q1 X Qty b) Decrease in supply curve :- When the supply of the commodity decreases due to some unfavorable changes in the factors other than the price of the goods the supply curve shifts to the left ward which is known as Decrease in supply. The unfavorable changes are responsible for decrease in supply are : • Obsolete technique of production. • Increase. in price of related goods. • Increase. in cost of production. • Decrease. In no of firms Y S2 S Price P S2 S Decrease O Q Q1 X Qty Elasticity of supply :- refers to responsiveness of quantity supplied to the change in its own price Es = % Change in quantity supplied % Change in priceDegree of it price elasticity of supply :-
1. Perfectly in elastic :- In this case, change in price does not effect the quantity supplied at all. Supply curve. in this case will be a vertical straight line // to Y-axis. The Elasticity of supply will be zero It happens in the case of highly perishable goods. Y Price S P2 Es = 0 P S P1 S O Q X Qty2. Perfectly elastic :- When quantity supplied changes without any change in the price or little decrease. in the price will bring quantity supplied to zero is known as perfectly elastic supply. Supply curve in this case will be a horizontal straight. line // to X – axis & elasticity of supply = ∞ Y Price Es = ∞ P O Q Q1 Q3 X Qty3. Unitary elastic supply :- When % change in quantity supplied is equal to the % change in price is known as unitary elastic supply. Supply curve in this case will be upward sloping starting from the origin & the elasticity of supply will be 1 (Es = 1)
X S Price P Es = 1 P1 S O Q1 Q2 Y Qty4. More than unitary elastic OR elastic supply :- When % change in quantity supplied is greater than % change in price is known as elastic supply OR > unitary elastic supply. Supply curve in this case will be upward sloping starting from Y – axis & Es > 1 Y Price P1 Es > 1 P O Q Q1 X Qty5. Inelastic Or less than unitary elastic supply :- When % change in qty. supplied is less than % change in price is known as inelastic or less than unitary elastic supply curve in this case will be upward sloping originating from X – axis Es < 1 Y S
Price P1 P Es < 1 S O Q Q1 X Qty For measurement of elasticity of supply we have 2 methods :- 1. Percentage Method 2. Graphic methodDeterminants / factors affecting elasticity of supply (i) Time factor :- Short period :- In this period elasticity of supply will be less in comparison to long period. Thus, elasticity of supply will be higher in the long period because producers will have enough time to produce more quantity & bring it to the market. (ii) Nature of the commodity :- Perishable goods will be less elastic in comparison to durable goods, durable goods will have very high elasticity because they can be stored & producers can easily meet the demand of the consumers. (iii) Production Capacity :- Flexible production capacity higher will be elasticity of supply. Rigid production capacity – lower will be elasticity of supply (iv) Future price expectation :- If price rise is expected in future elasticity of supply of the commodity will be low at present. On the other hand if fall in the price is expected in the future the elasticity of supply will be very high at present. (v) Nature of input :- If input req. for the production is easily available the supply of the product would be more elastic. On the other hand, if it uses specialized inputs its supply will be relatively inelastic. (vi) Behaviors of cost of production :- If there is increase in the cost of production the elasticity of supply of the good will be low due to decrease in the profit margin. On the other hand, a lower cost of production will have elastic supply of the product because profit margin in this case will be high. (vii) Risk taking :- If entrepreneurs are risk taking supply will be more elastic On the other hand, if they are hesitant in taking risk supply will be inelastic.Time Period (i) Market period OR Very short period :- It is the time period in which supply remains constant. It does not change with the change in price. It deals with highly perishable commodities like fish, milk & its products etc. supply curve in this case will be a vertical straight line // to Y – axis (ii) Y S
Price P3 P P1 P2 O Q X Qty(iii) Short period :- It is the time period when supply can be adjusted to some extent It deals with semi durable goods like fruits, vegetables, bakery products etc. supply curve in this case will be upward sloping originating from X – axis Y S Price S O X Qty(iv) Long period :- It is the time period when supply can be adjusted to large extent. It deals with durable goods like clothes, utensils etc. Supply curve in this case is upward sloping originating from Y – axis. Y
Price ` S S O X Qty(v) V. Long period :- It is the time period when supply can be adjusted to any extent is known as V. long period. It deals with highly durable goods like electronic goods, furniture’s etc. Supply curve in this case is almost a horizontal straight line. Y S Price S S O X Qty Difference b/w stock & supply Basic of diff. Stock Supply 1. Meaning Refers to the total amount of goods Means quantity of commodity which producers & seller are ready do that are offered for sale in the offer for sell at a particular point of market in given period of time time. at the given price 2. Dependence Stock Of the commodity mainly Supply Of a commodity. depends on depends mainly on the market a) Production of commodity . price of the commodity b) Procurement price c) Storage & transport cost 3. Concept It has a stock concept i.e. stock refers It is a flow concept i.e. it refers to amount of a commodity. at a to the amount of a commodity
particular point of time during a period of time. 4. Commodities In case of highly perishable In case of durable commodity. commodity. stock & supply would supply consists only a part of almost he same since these items total stock cannot be stoked for a long period. 5. Objective The stock of any commodity. helps in Enables the firm to earn sales checking fluctuations of market price. revenuesLong Answer Questions :-Q.1. What is supply. Explain its factors affecting supply.Q.2. Explain the law of supply with its assumptions & graph.Q.3. Give reasons for upward sloping supply curve. is there any exception to it.Q.4. Differentiate between change in quantity supply & change in supply (Meaning, types of movements, direction of movement, causes, graph)Q.5. Explain the degrees of price elasticity of supply.Q.6. What is elasticity of supply explain the factors effecting it.Q.7. Explain the relationship of supply curve with the time period.