This document discusses the law of supply and market equilibrium. It defines supply as the quantity of a good a firm is willing to provide at a given price. A supply schedule shows the quantity supplied at different price levels, while a supply curve is the graphical representation of the supply schedule. The determinants of supply include price, costs of inputs, technology, taxes/subsidies, and government policy. According to the law of supply, the quantity supplied increases with price and decreases with price, assuming other factors remain constant. There are exceptions for agricultural and perishable goods. The document also discusses elasticity of supply.

1. LAW OF SUPPLY
AND MARKET
EQUILIBRIUM:

2. SUPPLY-MEANING
◦ Supply for a good is the quantity of that good which a firm or industry
is willing to supply at a given price during a given period of time.
◦ Quantity supplied refers to the particular quantity offered for sale at a
particular price level at a specific point of time.
◦ Market supply is the quantity of a good supplied by all the firms taken
together at a given price during a period of time.

3. SUPPLY SCHEDULE
◦ It is a schedule that shows the quantity supplied of a commodity at
different prices during a period of time.
◦ Individual supply schedule is a presentation showing different
quantities offered for sale at different prices by a firm.

4. SUPPLY CURVE
◦ Diagrammatic presentation of supply schedule is called supply curve. It
is the diagram that represents different quantities of a commodity
supplied at different price levels.

5. ◦ Market Supply refers to tabular presentation showing total quantities
offered for sale at various prices by all firms in the market.

6. Market supply curve

7. Supply Function
◦ Functional relationship between supply and its various determinants.
◦ S = f(P, Price of other goods, N, G, T, G etc.)

8. DETERMINANTS OF SUPPLY
◦ Price of a commodity
◦ Price of other related goods
◦ Price of factor inputs
◦ Technology
◦ Taxes and Subsidies
◦ Govt. Policy
◦ Goal of the firm

12. LAW OF SUPPLY
◦ Law of supply states that other things remaining constant ,supply of a
commodity increases with increase in its price and vice-versa.

13. ASSUMPTIONS
◦ There is no change in the technique of production.
◦ There is no change in the price of substitute goods or complimentary
goods.
◦ Factor price remains unchanged.
◦ Govt. of the firm remains unchanged
◦ Goal of the firm remains unchanged

14. EXCEPTIONS TO LAW OF SUPPLY
◦ Agricultural goods
◦ Supply of agricultural goods depends upon the natural factors and not
on their price therefore law of supply does not operate in case of
agricultural goods.
◦ Perishable goods
◦ The seller of perishable goods cannot hold such goods for long as they
are perishable, so law fails to operate in this case.

15. Changes in Supply
◦ There are two types of change in supply:
◦ 1. Movement along supply curve
◦ 2. Shift of the supply curve

16. MOVEMENT ALONG SUPPLY CURVE
◦ When supply of a commodity changes due to change in its own price,
other factors remaining constant, it is called movement along supply
curve
◦ It ha two categories:
A) EXTENSION OF SUPPLY
B) CONTRACTION OF SUPPLY

17. Extension in Supply
◦ When supply of a commodity increases due to increase in its own price,
it is called extension in demand.
◦ It is caused due to rise in price of the commodity, other factors
remaining constant.
◦ It is shown by an upward movement along the same supply curve.

18. Contraction in supply
◦ When supply of a commodity decreases due to decrease in its own
price, it is called contraction in supply.
◦ It is caused due to fall in price of the commodity, other factors
remaining constant.
◦ It is shown by an downward movement along the same supply curve.

19. SHIFT OF SUPPLY CURVE
◦ When supply of a commodity changes due to change in factors other
than price, own price remaining constant, it is called shift in supply
curve.
◦ It ha two categories:
A) INCREASE IN SUPPLY
B) DECREASE IN SUPPLY

27. ELASTICITY OF
SUPPLY

28. Elasticity of Supply
◦ When change in quantity supplied is measured with respect to change
in price of a commodity, it is called price elasticity of supply.
◦ It is the degree of responsiveness of change in quantity supplied of a
good due to change in its price.
◦ Es is the percentage change in the quantity supplied divided by the
percentage change in price.
◦ Es = % change in the quantity supplied
-------------------------------------------------------------
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% change in price

29. DEGREES OF ELASTICITY OF
SUPPLY
 Perfectly elastic, where supply is infinite at any one price. (highly
luxurious goods)
 Perfectly inelastic, where only one quantity can be supplied. (highly
essential, rare goods)
 Unit elasticity, which graphically is shown as a linear supply curve
coming from the origin.
 Relatively elastic, change in supply is more than change in price.
(luxury items – smart phones, gold)
 Relatively inelastic, when change in supply is less than change in
price. (necessary, routine goods – clothes, food)

36. MEASUREMENT OF ELASTICITY
OF SUPPLY

37. GEOMETRIC OR POINT
ELASTICITY METHOD
◦ Elasticity is measured at a point on the supply curve by the following
method:
Horizontal segment/ Quantity supplied
◦ 1. When supply curve passes through Y axis.
◦ PM/OM, E>1, Since PM > OM
◦ 2. When supply curve passes through X axis
◦ PM/OM, E<1, Since PM < OM
◦ 3. When supply curve passes through the point of origin
◦ PM/OM, E=1, Since PM =OM