2. Market Supply
It refers to quantity of a
commodity that all the firms are
willing and able to offer for sale at
a given price during a given
period of time.
Supply refers to quantity of a commodity that a firm is willing and
able to offer for sale at a given price during a given period of time.
It can be of two types :
Supply
Individual Supply
It refers to quantity of a
commodity that an individual
firm is willing and able to offer
for sale at a given price during a
given period of time.
3. ๏ It refers to the total quantity of a
particular commodity that is available
with the firm at a particular point of
time.
๏ Stock can never be less than the supply.
๏ It relates to a particular point of time.
๏ It indicates a fixed quantity.
๏ It is that part of stock which a producer
is willing to bring in the market for sale.
๏ It relates to a time period.
Supply
Stock
4. Determinants of Individual Supply
1) Price of the Given Commodity :
๏ The most important factor determining the supply of a commodity is its price.
๏ Price of a commodity and its supply are directly related.
๏ This signifies, as price increases, the quantity supplied of the given
commodity also rises and vice versa.
2) Prices of Other Goods :
๏ Quantity supplied of a commodity depends not only on its price,
but also on the prices of other commodities.
๏ Increase in the prices of other goods makes them more profitable in
comparison to the given commodity.
๏ Firm shifts its limited resources from production of the given commodity to other goods.
3) Prices of Factors of Production or Inputs :
๏ Price of factor of production (like, labour, capital, raw material, etc.) used in the process of
production constitute the cost of production of the commodity. If the prices of all or any of these
factors increases, the cost of production also increases. This decreases the profitability.
๏ As a result, the seller reduces the supply of the commodity.
๏ Decrease in prices or inputs, increases the supply due to fall in cost of production and subsequent rise
in profit margin.
5. 4) State of Technology :
๏ Technology changes influence the supply of a commodity.
๏ Advanced and improved technology reduces the cost of production, which raises the
profit margin and induces the seller to increase the supply.
๏ Outdated technology increase the cost of production and it will lead to decrease in
supply.
5) Government Policy (Taxes and Subsidies) :
๏ Increase in taxes raises the cost of production and
reduces the supply, due to lower profit margin.
๏ Tax concessions and subsidies increase the supply as
the make it more profitable for the firms to supply goods.
6) Goals / Objectives of the Firm :
๏ Generally, supply of a commodity increases only at higher prices as it fulfills the
objective of profit maximization.
๏ With change in trend, some firms are willing to supply more even at those prices,
which do not maximize their profits.
๏ The objective of these firms is to capture extensive markets and to enhance their
status and prestige.
6. Determinants of Market Supply
Number of Firms in the Market :
๏ When the number of firms in the industry increases, market supply also increases due to
large number of producers producing that commodity.
๏ Market supply will decrease, if some of the firms start leaving the industry due to losses.
Future Expectation Regarding Price :
๏ If sellers expect a rises in price in future, then market supply will
decrease in order to raise the supply in future at higher prices.
๏ If sellers fear that the prices will fall in future, then they will
increase the current supply to avoid losses in future.
Means of Transportation and Communication :
๏ Proper infrastructural development, like improvement in the means of transportation
and communication, help in maintaining adequate supply of the commodity.
7. Price of the Given Commodity
Prices of Factors of Production
Government Policy
Number of Firms
Means of Transportation and Communication
Prices of Other Goods
State of Technology
Goals / Objectives of the Firm
Future Expectation Regarding Price
Determinants of Market Supply are :
8. It can be of two types
Individual
Supply Function
Market Supply
Function
It shows the functional relationship between
quantity supplied for a particular commodity and
the factors influencing it.
Supply Function
9. It is expressed as : SX = f (PX, PO, PF, ST, T, G)
Where, SX = Supply of given commodity x;
PO = Price of Other Goods;
PX = Price of Given Commodity x;
St = State of Technology;
Pf = Price of Factors of Production;
G = Goals of Firm;
T = Taxation Policy.
It refers to the functional relationship between supply
and factors affecting the supply of a commodity.
Individual Supply Function
10. It is expressed as : SX = f (Px, P0, PF, St, T, G, N, F, M)
Where, SX =Market Supply of given commodity x;
PO = Price of other goods;
PX = Price of given commodity x;
St = State of technology;
Pf = Price of factors of production;
G = Goals of the market;
T = Taxation policy;
F = Future expectation regarding PX;
N = Number of firms;
M = Means of transportation and communication.
It refers to the functional relationship between market supply
and the factors affecting the market supply of a commodity.
Market Supply Function
11. It can be of two types
Individual
Supply Schedule
Market Supply
Schedule
It is a tabular statement showing various quantities
of a commodity being supplied at various levels of
price, during a given period of time.
Supply Schedule
12. Individual Supply Schedule :
It refers to a tabular statement showing
various quantities of a commodity that
a producer is willing to sell at various
levels of price, during a given period of
time.
Schedule :
Price (Rs.) Quantity Supplied of goods x (units)
1 5
2 10
3 15
4 20
5 25
Market Supply Schedule :
It refers to a tabular statement showing
various quantities of a commodity that
all the producers are willing to sell at
various levels of price, during a given
period of time.
Schedule :
Price SA SB Market Supply (SA + SB)
1 5 10 15
2 10 20 30
3 15 25 40
4 20 35 55
5 25 40 65
13. Individual Supply Curve :
๏ It refers to a graphical representation of
individual supply schedule.
๏ The supply curve slopes upwards because
of positive relationship between price and
quantity supplied. Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
A
Individual Supply Curve
SS
5
4
3
2
1
25
20
15
10
5
C
D
E
B
It is of two types :
Supply Curve
Individual Supply
Curve
Market Supply
Curve
It refers to a graphical
representation of
supply schedule.
14. Market Supply Curve :
๏ It refers to a graphical representation of
market supply schedule.
๏ It is also positively sloped due to positive
relationship between price and quantity
supplied.
Market supply curve is flatter than all individual supply
curves
It happens because with a change in price, the proportionate
change in market supply is more than the proportionate
change in individual supplies.
Quantity Supplied (units)
Y
X
O 10 20 30 40 50 60
1
2
3
4
5
Price
(Rs.)
SA
SB
SM
SM is flatter than
SA and SB
Market Supply Curve
15. ๏ Due to direct relationship between
price and supply, supply curve
slopes upwards. So, slope is positive.
๏ Slope of supply curve measures the
flatness or steepness of the supply
curve. So, it is based on the absolute
change in price and quantity.
Slope of a Supply Curve
Slope of a Supply Curve =
๐๐ก๐๐ง๐ ๐ ๐ข๐ง ๐๐ซ๐ข๐๐ (โ๐)
๐๐ก๐๐ง๐ ๐ ๐ข๐ง ๐๐ฎ๐๐ง๐ญ๐ข๐ญ๐ฒ (โ๐)
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
S
10
8
6
4
2
5
4
3
2
1
S
โQ = 2
โP
=
4
16. ๏ It refers to different quantities of a
commodity that the producer is
ready to sell at different levels of
prices.
๏ It describes the behaviour of the
firm at every possible price.
๏ It refers to a specific quantity, in
the supply schedule, supplied
against a specific price.
Quantity
Supplied
Supply
17. Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
SS
5
4
3
2
1
50
40
30
20
10
Schedule
Price (Rs.) Quantity (units)
1 10
2 20
3 30
4 40
5 50
Important Points about Law of Supply :
๏ It states the positive relationship between price and quantity
supplied, assuming no changes in other factors.
๏ It is a qualitative statement, as it indicates the direction of change
in quantity supplied, but it does not indicate the magnitude of
change.
๏ Law is one sided as it explains only the effect of change in price on
the supply, and not the effect of change in supply on the price.
Law of Supply states the direct relationship between
price and quantity supplied, keeping other factors
constant (ceteris paribus).
Law of Supply
Assumptions of Law of Supply :
๏ Price of other goods is constant.
๏ There is no change in the state of technology.
๏ Prices of factors of production remain the same.
๏ There is no change in the taxation policy.
๏ Goals of the producer remain the same.
18. Reasons for Law of Supply
๏ The basic aim of producers is to secure maximum profits.
๏ When price of a commodity increases, without change in costs, it raises their profits, so
producers increase the supply of the commodity by increasing the production.
๏ With fall in prices, supply also decreases as profit margin decreases at low prices.
Profit
Motive :
๏ A rise in price induces the producers to enter into the market,
so as to earn higher profits.
๏ Increase in number of firms raises the market supply.
๏ As the price starts falling, some firms which do not expect to earn
any profits at a low price, either stop the production or reduce it.
๏ It reduces the supply of a given commodity as the number of firms
in the market decreases.
Change in
Number of
Firms :
๏ When the price of a good increases, the sellers are ready to supply more goods from
their stocks.
๏ At a relatively lower price, producers do not release big quantities from their stocks
and start increasing their inventories with a view that price may rise in near future.
Change in
Stock :
19. 1) Future Expectations :
๏ If sellers expect a fall in price in the future, then the law of supply may not hold true.
๏ The sellers will be willing to sell more even at a lower price.
๏ If they expect the rise in price, they would reduce the supply, in order to supply later at a high price.
2) Agricultural Goods :
๏ Law of supply does not apply to agricultural goods as their production depends on climatic
conditions.
๏ Due to unforeseen changes in weather, production of agricultural goods is low, then their supply
cannot be increased even at higher prices.
3) Perishable goods :
๏ In case of perishable goods, like fruits, vegetables, etc. sellers will be
ready to sell more even if the prices are falling.
๏ It happens because sellers cannot hold such goods for long.
4) Rare Articles :
๏ Rare, artistic and precious articles are outside the scope of law of supply.
๏ For example : Supply of rare articles like supply of painting like Mona Lisa
cannot be increased, even if their prices are increased.
5) Backward Countries :
๏ Production and supply cannot be increased with rise in price due to shortage of resources.
Exceptions of Law of Supply
20. ๏ When quantity supplied of a
commodity due to change in its own
price, keeping other factors constant,
it is known as โChange in Quantity
Suppliedโ.
๏ It is graphically expressed as a
movement along the same supply
curve.
๏ There can be either contraction
(downward) or expansion (upward)
along the supply curve.
Movement
along the
Supply Curve :
21. Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
S
25
20
150
100
Expansion in Supply
S
A
B
As seen in the above diagram and schedule, quantity supplied
rises with an increase in price, resulting in upward movement
from A to B.
Expansion in Supply
๏ It refers to a rise in the quantity supplied due to increase in
price of the commodity, other factors remaining constant.
๏ It leads to an upward movement along the same supply
curve.
๏ It is known as โExtension in Supplyโ or โIncrease in Quantity
Suppliedโ.
Price (Rs.) Quantity (units)
20 100
25 150
Schedule
22. As seen in the above diagram and schedule, quantity supplied
falls with decrease in price, resulting in downward movement
from A to B.
Contraction in Supply
๏ It refers to a fall in the quantity supplied due to
decrease in price of the commodity, other factors
remaining constant.
๏ It leads to a downward movement along the same
supply curve.
๏ It is also known as โDecrease in Quantity Suppliedโ.
Price (Rs.) Quantity (units)
20 100
15 70
Schedule
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
S
20
15
100
70
Contraction in Supply
S
B
A
23. ๏ When supply of a commodity
changes due to change in any
factor other than the own price of
the commodity, it is known as
โChange in Supplyโ.
๏ It is graphically expressed as shift in
supply curve.
๏ There can be either increase
(rightward shift) or decrease
(leftward shift) in supply along the
same supply curve.
Shift in Supply
Curve :
24. As seen in the above schedule and diagram, supply
rises at the same price, resulting in a rightward shift of
the supply curve.
Increase in Supply
๏ It refers to a rise in supply of a commodity
caused due to any factor other than the own
price of the commodity.
๏ It leads to a rightward shift in the supply
curve.
Price (Rs.) Supply (units)
20 100
20 150
Schedule
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
S1
20
150
100
Increase in Supply
S1
S
S
25. As seen in the above diagram and schedule, supply
falls at the same price, resulting in a leftward shift of
the supply curve.
๏ It refers to a fall in the supply of a
commodity caused due to any factor other
than the own price of the commodity.
๏ It leads to a leftward shift in the supply
curve.
Price (Rs.) Supply (units)
20 100
20 70
Schedule
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
S
20
100
70
Decrease in Supply
S
S1
S1
Decrease in Supply
26. Difference between Movement along Supply Curve & Shift in Supply Curve
Basis Movement along Supply Curve Shift in Supply Curve
Meaning
When the quantity supplied
changes due to change in price,
keeping other factors constant, it
leads to a movement along the
supply curve.
When the supply of a commodity
changes due to a change in any
factor other than the own price of
the commodity, it leads
to a shift in supply curve.
Effect on
Supply
Curve
The movement is along the same
supply curve either upward
(expansion in supply) or
downward (contraction in supply).
The shift in the supply curve is
either rightward (increase in
supply) or leftward (decrease in
supply).
Reason
It occurs due to an increase or
decrease in the price of the given
commodity.
It occurs due to change in other
factors, like change in price of
inputs, change in taxes, etc.
27. Difference between Change in Quantity Supplied and Change in Supply
Basis Change in Quantity Supplied Change in Supply
Meaning
When the quantity supplied
changes due to change in price,
keeping other factors constant, it
is known as change in quantity
supplied.
When the supply changes due
to change in any factor other
than the own price of the
commodity, it is known as
change in supply.
Effect on
Supply
Curve
It leads to a movement along the
same supply curve, either
upward (expansion in supply) or
downward (contraction in
supply).
It leads to shift in the supply
curve either rightward
(increase in supply) or leftward
(decrease in supply).
Reason
It occurs due to an increase or
decrease in the price of the given
commodity.
It occurs due to change in other
factors, like change in price of
inputs, change in taxes, etc.
28. Differences Between Expansion In Supply And Increase In Supply
Basis Expansion in Supply Increase in Supply
Meaning
When the quantity supplied
rises due to an increase in price,
keeping other factors constant,
known as expansion in supply.
Increase in supply refers to a rise in
the supply of a commodity caused
due to any factor other than the
own price of the commodity.
Tabular
Presentation
Effect on
Supply Curve
There is an upward movement
along the same supply curve.
There is a rightward shift in the
supply curve.
Reason
It occurs due to increase in price
of the given commodity.
It occurs due to other factors like
decrease in price of inputs,
decrease in taxes, etc.
Price (Rs.) Supply (Units)
10 100
12 150
Price (Rs.) Supply (Units)
10 100
10 150
29. Differences between Contraction in Supply and Decrease in Supply
Basis Contraction in Supply Decrease in Supply
Meaning
When the quantity supplied
falls due to a decrease in price,
keeping other factors constant,
it is known as contraction in
supply.
Decrease in supply refers to a fall
in the supply of a commodity
caused due to any factor other
than the own price of the
commodity.
Tabular
Presentation
Effect on
Supply Curve
There is a downward movement
along the same supply curve.
There is a leftward shift in the
supply curve.
Reason
It occurs due to decrease in price
of the given commodity.
It occurs due to other factors like
increase in price of inputs, increase
in taxes, etc.
Price (Rs.) Supply (Units)
12 150
10 100
Price (Rs.) Supply (Units)
12 150
12 100
30. Supply (in units)
O
Y
X
Price
(in
โน)
S
Effect on Supply Curve due to increase in price of other goods
Supply curve of
given commodity
shift towards left
from SS to S1 S1 due to
increase in price of
other goods
P
S
S1
S1
Q
Q1
Supply (in units)
O
Y
X
S1
Effect on Supply Curve due to decrease in price of other goods
Supply curve of
given commodity
shift towards right
from SS to S1 S1 due to
decrease in price of
other goods
P
S1
S
S
Q1
Q
Price
(in
โน)
Effects on Supply Curve Due to Change in Price of Other Goods
Increase in Price of Other Goods :
๏ When prices of other goods rises, then
production of such other goods become
more profitable in comparison to the
given commodity.
๏ As a result, supply falls and leads to a
leftward shift in the supply curve.
Decrease in Price of Other Goods :
๏ Fall in prices of other goods make
production of the given commodity
more profitable.
๏ As a result, supply increases and
leads to rightward shift in the supply
curve.
31. Increase in Price of Factors of
Production :
๏ Rise in price of factors of production
increases the cost of production and
reduces the profit margin.
๏ As a result, supply falls and leads to a
leftward shift in the supply curve.
Decrease in Price of Factors of
Production :
๏ Fall in price of factors of production,
decreases the cost of production and
increases the profit margin.
๏ As a result, supply increases, and leads
to a rightward shift in the supply curve.
Supply (in units)
O
Y
X
Price
(in
โน)
S
Effect on Supply Curve due to increase in price of factors of production
Supply curve of
given commodity
shift towards left
from SS to S1 S1 due
to increase in price
of factors of
production
P
S
S1
S1
Q
Q1
Supply (in units)
O
Y
X
S1
Effect on Supply Curve due to decrease in price of factors of production
Supply curve of
given commodity
shift towards right
from SS to S1 S1 due
to decrease in price
of factors of
production
P
S1
S
S
Q1
Q
Price
(in
โน)
Effect on Supply Curve Due to Change in Price of Factors of Production
32. Upgradation of Technology :
๏ Advanced and improved technology
reduces the cost of production and
raises the profit margin.
๏ As a result, supply rises and leads to a
rightward shift in the supply curve.
Supply (in units)
O
Y
X
Price
(in
โน)
S
Effect on Supply Curve due to degradation of technology
Supply curve of
given commodity
shift towards left
from SS to S1 S1 due to
degradation of
technology
P
S
S1
S1
Q
Q1
Supply (in units)
O
Y
X
S1
Effect on Supply Curve due to Upgradation of technology
Supply curve of
given commodity
shift towards right
from SS to S1 S1 due to
Upgradation of
technology
P
S1
S
S
Q1
Q
Price
(in
โน)
Effects on Supply Curve Due to Change in State of Technology
Degradation of Technology :
๏ Technological degradation or complex
and outdated technology lead to rise in
cost of production and fall in profit
margin.
๏ As a result, supply decreases and it leads
to a leftward shift in the supply curve.
33. Supply (in units)
O
Y
X
Price
(in
โน)
S
Effect on Supply Curve due to increase in taxes
Supply curve of
given commodity
shift towards left
from SS to S1 S1 due to
increase in taxes
P
S
S1
S1
Q
Q1
Supply (in units)
O
Y
X
S1
Effect on Supply Curve due to decrease in taxes
Supply curve of
given commodity
shift towards right
from SS to S1 S1 due to
decrease in taxes
P
S1
S
S
Q1
Q
Price
(in
โน)
Effects on Supply Curve Due to Change in Taxation Policy
Increase in Taxes :
๏ Rise in taxes increase the cost of
production and reduces the profit
margin.
๏ As a result, supply falls and leads to
a leftward shift in the supply curve.
Decrease in Taxes :
๏ When taxes falls, cost of production
falls and profit margin rises.
๏ As a result, supply increases and
leads to a rightward shift in the
supply curve.
34. Decrease in Price of Other Goods
Decrease in Price of Factors of Production
Advanced and Improved Technology
Goals of Sales Maximization
Increase in Number of Firms
Expectation of Fall in Prices in Future
Improvement in Means of Transport and Communication
Favorable Taxation Policy
Supply Curve shifts towards right due to :
Supply (in units)
O
Y
X
Price
(in
โน)
Q
P
Q1
S
S
S1
S1
Effect on supply curve due to decrease
in price of factors of production
35. Increase in Price of Other Goods
Increase in Price of Factors of Production
Complex and Outdated Technology
Goals of Profit Maximization
Decrease in Number of Firms
Expectation of Rise in Prices in Future
Poor Means of Transport and Communication
Unfavorable Taxation Policy
Supply Curve shifts towards left due to :
Supply (in units)
O
Y
X
Price
(in
โน)
Q1
P
Q
S1
S1
S
S
36. There are Two Methods
for Calculating Elasticity
Percentage
Method
Proportionate
Method
It refers to degree of responsiveness of supply of a commodity
with reference to change in price of such commodity.
Price Elasticity of Supply
37. Where,
๏ % change in Quantity Supplied =
โ๐
๐
X 100
๏ Change in Quantity (โQ) = New Quantity (Q1) โ Initial Quantity (Q)
๏ Percentage Change in Price =
โ๐
๐
X 100
๏ Change in Price (โP) = New Price (P1) โ Initial Price (P)
Percentage Method
According to this method, elasticity is measured as
the ratio of percentage in the quantity supplied to
percentage change in the price.
% ๐๐ก๐๐ง๐ ๐ ๐ข๐ง ๐๐ฎ๐๐ง๐ญ๐ข๐ญ๐ฒ ๐๐ฎ๐ฉ๐ฉ๐ฅ๐ข๐๐
% ๐๐ก๐๐ง๐ ๐ ๐ข๐ง ๐๐ซ๐ข๐๐
Price Elasticity
of Supply (ES) =
38. Elasticity
of Supply
ES =
๏ Q = Initial Quantity Supplied
๏ โQ = Change in Quantity Supplied
๏ P = Initial Price
๏ โP = Change in Price
Proportionate Method
โ๐
๐
๐ ๐๐๐
โ๐
๐
๐ ๐๐๐
โ๐
โ๐
X
๐
๐
Notes :
๏ Price Elasticity of Supply will always have a positive sign as
against the negative sign of elasticity of demand.
๏ It happens because of direct relationship between price and
quantity supplied.
Where
=
40. ๏ From the above diagram and schedule, quantity supplied can be
100, 200 or 300 units at the same price.
๏ ES = โ and the supply curve is a horizontal straight line parallel to X-
axis.
๏ Perfectly elastic supply is an imaginary situation.
When there is an infinite supply at a particular
price and the supply becomes zero with a slight
fall in price, then the supply of such a
commodity is said to be perfectly elastic.
Price (Rs.) Supply (units)
30 100
30 200
30 300
Schedule
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Perfectly Elastic Supply
(ES = โ)
SS
Q
P
Q1 Q2
Perfectly Elastic Supply
41. ๏ From the above diagram and schedule, quantity supplied remains
same whether the price is Rs.20, Rs.30 or Rs.40.
๏ ES = 0 and the supply curve is a vertical straight line parallel to Y-
axis.
๏ Perfectly inelastic supply is an imaginary situation.
When the supply does not change with the
change in price, then supply for such a
commodity is said to be perfectly inelastic.
Price (Rs.) Supply (units)
20 20
30 20
40 20
Schedule
Perfectly Inelastic Supply
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Perfectly Inelastic Supply
(ES = 0)
SS
Q
P
P1
P2
42. ๏ From the above diagram and schedule, quantity supplied rises by
100% due to a 50% rise in price.
๏ ES >1 and the supply curve has an intercept on the Y-axis.
๏ QQ1 is proportionately more than PP1, elasticity of supply is more
than 1.
When percentage change in quantity supplied
is more than the percentage change in price,
then supply for such a commodity is said to be
highly elastic.
Price (Rs.) Supply (units)
10 100
15 200
Schedule
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Highly Elastic Supply
(ES > 1)
SS
Q
P
P1
Q1
Highly Elastic Supply
43. ๏ From the above diagram and schedule, quantity supplied by
20% due to 50% rise in price.
๏ ES < 1 and the supply curve has an intercept on the X-axis.
๏ QQ1 is proportionately less than PP1, elasticity of supply is less
than 1.
When percentage change in quantity supplied
is less than the percentage change in price, then
supply for such a commodity is said to be less
elastic.
Price (Rs.) Supply (units)
10 100
15 120
Schedule
Less Elastic Supply
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
(ES < 1) SS
Q
P
P1
Q1
Less Elastic Supply
44. ๏ From the above diagram and schedule, quantity supplied rises
by 50% due to 50% rise in price.
๏ ES = 1, and supply curve is a straight line passing through the
origin.
๏ QQ1 is proportionately equal to PP1, ES = 1.
When percentage change in quantity supplied
equal to percentage change in price, then
supply for such a commodity is said to be
unitary elastic.
Price (Rs.) Supply (units)
10 100
15 150
Schedule
Unitary Elastic Supply
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Unitary Elastic Supply
(ES = 1)
SS
Q
P
P1
Q1
45. Time Period & Supply
From the view point of supply, time has been broadly divided into three periods :
Market Period (Very short period)
๏ Market period refers to a very
short period in which the supply
cannot be changed in response to
the change in demand.
๏ The supply curve is a straight line
parallel to Y-axis (perfectly
inelastic). Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Supply is perfectly
Inelastic in very short
period
S
S
46. Long Period :
๏ Long period refers to a period in
which output (supply) can be
changed by changing all factors of
production.
๏ The supply curve is highly elastic.
Short Period :
๏ Short period refers to a period in
which output (supply) can be
changed by changing only variable
factors.
๏ The supply curve is less elastic.
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Supply is highly elastic in long period
S
S
Quantity Supplied (in units)
O
Y
X
Price
(in
โน) Supply is less elastic in short period
S
S
47. Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Unitary Elastic Supply
Curves (ES = 1)
C
A
B
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
Flatter Curve SS is more elastic as
compared to steeper curve S1 S1
E
S1 (Steeper Curve)
P
P1
Q2 Q1 Q
S (Flatter Curve)
S1
S
Flatter the curve, more is the
elasticity at the point of
intersection :
๏ Supply is more elastic in case of SS
(flatter curve) as compared to S1S1.
All the supply curves, which pass through
the origin are unitary elastic :
๏ Any straight-line supply curve, which
passes through the origin, has unitary
elastic supply, irrespective of the angle it
makes with the origin.
Important Observations
48. Quick
Recap
Curve
Quantity Supplied (in units)
O
Y
X
Price
(in
โน)
S1S1 (ES = 0)
S2S2 (ES > 1)
S4S4 (ES = 1)
S3S3 (ES < 1)
SS (ES = โ)
Type Value Description
Perfectly
Elastic
ES = โ
Infinite supply at same
price
Perfectly
Inelastic
ES = 0 Same supply at all prices
Highly
Elastic
ES > 1
% โ in Supply > % โ in
Price
Less Elastic ES < 1
% โ in Supply < % โ in
Price
Unitary
Elastic
ES = 1
% โ in Supply = % โ in
Price