EEFA - LAW OF SUPPLY - FINAL YEAR CS/IT - SRI SAIRAM INSTITUTE OF TECHNOLOGY - DR,K,BARANIDHARAN

1. Dr.K.Baranidharan
Present by…

2. Engineering
Economics &
Financial Accounting
Ee&fa
218 August 2013

3. LAW OF SUPPLY

4. Law of Supply
• Law of Supply- refers to the relationship between price and
the quantity of a good or service that firms are willing to
produce. The higher the price of the product leads to more
supplies and more companies making the product.
Price
As price
increases…
Supply
Quantity
supplied
increases
Price
As price
falls…
Supply
Quantity
supplied
falls

5. Faculty of Business and Economics (FBE), The IIPM, New Delhi
SUPPLY
• Quantity Supplied refers to the
amount (quantity) of a good that
sellers are willing to make
available for sale at alternative
prices for a given period.

6. Faculty of Business and Economics (FBE), The IIPM, New Delhi
Price
Law of Supply
– The law of supply states that,
other things equal,
the quantity
supplied of a good
rises when the
price of the good
rises.

7. Faculty of Business and Economics (FBE), The IIPM, New Delhi
The Supply Schedule and the
Supply Curve
 The supply schedule is a table
that shows the relationship
between the price of the good and
the quantity supplied.
 The supply curve is a graph of the
relationship between the price of
a good and the quantity supplied.
 “Other thing being equal”

8. Faculty of Business and Economics (FBE), The IIPM, New Delhi
Table 4-4: Ben’s Supply Schedule
53.00
42.50
32.00
21.50
11.00
00.50
00.00
Quantity of
cones Supplied
Price of Ice-
cream Cone ($)

9. Faculty of Business and Economics (FBE), The IIPM, New Delhi
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
6 8 10 120 2
1.50
1.00
1
2.00
3 4
$3.00
2.50
5
0.50
Figure 4-5: Ben’s Supply Curve

10. Elasticity of supply
• The degree of responsiveness of the
quantity of a commodity applied for a
small change in its price.
Faculty of Business and Economics (FBE), The IIPM, New Delhi

11. Types of elasticity
• A)perfect elasticity or infinite elasticity of
supply (Es = ∞)
• Any quantity can be supplied it a given price
and there is no need to increase the price
• On the other hand the firm can even stop the
supply completely.
• But this situation is not found in the real world
and is only a hypothetical case.
• Curve: the shape of the line is horizontal and
parallel to the x-axis
Faculty of Business and Economics (FBE), The IIPM, New Delhi

12. Perfectly elasticity or infinite
elasticity of supply
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Quantity supplied
O
X
Y
p

13. • B) perfectly inelasticity supply ((Es =
0)
• Supply remain constant irrespective
of the changes in price.
• Other words the firm is completely
insensitive to the price change.
• Curve; the shape of the supply curve
is a vertical line parallel to the y -
axis
Faculty of Business and Economics (FBE), The IIPM, New Delhi

14. PERFECTLY ELASTICITY OF
SUPPLY
Faculty of Business and Economics (FBE), The IIPM, New Delhi
price
O
X
Y
Quantity suppliedQ

15. UNITY ELASTICITY ((Es = 1)
•The percentage
change in quantity
supplied is equal to
the percentage
change in price
Faculty of Business and Economics (FBE), The IIPM, New Delhi

16. Unit elasticity
» Es = 1
Faculty of Business and Economics (FBE), The IIPM, New Delhi
price
O
X
Y
Quantity supplied
S

17. RELATIVELY ELASTIC ((Es ► 1)
• The elasticity of supply is
greater than 1 the supply is
said to be elastic. If the price
increase by 10% the supply
increase by more than 10%
• Conversely, if the price falls
by 10% the supply falls by
more than 10%
Faculty of Business and Economics (FBE), The IIPM, New Delhi

18. • Es ► 1
Faculty of Business and Economics (FBE), The IIPM, New Delhi
price
O
X
Y
Quantity supplied

19. RELATIVELY INELASTICITY
SUPPLY (Es ◄ 1)
• The % change in
quantity supplied is
less than % change in
price. Supply is said
to be inelasticity.
Faculty of Business and Economics (FBE), The IIPM, New Delhi

20. RELATIVELY INELASTIC SUPPLY
• Es ◄ 1
Faculty of Business and Economics (FBE), The IIPM, New Delhi
price
O
X
Y
Quantity supplied

21. Dr.K.Baranidharan
THANK YOU