SUPPLYMeaning and definitionProblem of supplyLaw of supplyDeterminants of supplyExpansion and contractionIncrease and decrease

MEANING

• supply is the amount of some product producers are willing and able to sell at a given price all other factors being held constant

•Total stock of goods in existence•Amount of goods offered for sale per unit of time

DEFINITION•PROF.MC CONNEL defines supply in the following terms: “supply may be defined as a schedule which shows the various amounts of a product which a producer is willing to and able to produce and make available for sale in the market at each specific price in set of possible prices during some given period”

PROBLEM OF SUPPLY

PROBLEM 1:“ when a commodity is wanted by everyone ,it becomes scarce. If nobody wants it , it will become plentiful” –stonier and Hauge

PROBLEM 2: Limited factors of production

THERE ARE MILLIONS OF GOODS WITH PRICE;BUT EACH ONE IS SCARCE IN RELATION TO DEMAND

LAW OF SUPPLY

•Other things being constant , the price of a commodity has DIRECT INFLUENCE on quantity supplied. As the price of a commodity rises , its supply is extended ; as the price falls, its supply is contracted

Price rises

Price falls

Qty. supplied falls

Qty. suplied rises

SUPPLY SCHEDULE

•A supply schedule is a table which shows how much one or more firms will be willing to supply at particular prices.

•The supply schedule shows the quantity of goods that a supplier would be willing and able to sell at specific prices under the existing circumstances.

•Hypothetical in nature

PRICE IN (RS) QUANTITY SUPPLIED(UNITS)

3 40

4 50

5 60

6 75

7 90

SUPPLY CURVE

40 50 60 75 900

1

2

3

4

5

6

7

8

Qty.supplied

price

INTERPRETATION

•SUPPLY CURVE SLOPES UPWARDS•EVERY INCREASE IN PRICE RESULTS IN QUANTINTY SUPPLIED

•SLOPE OF THE SUPPLY CURVE IS POSITIVE

EXCEPTIONS TO THE LAW OF SUPPLY

•Agricultural goods

•Goods of social distinction

•Perishable goods

SUPPLY FUNCTIONThere are various factors which may affect supply for a commodity.

Sx = f ( Px, Po, Nf,Pf, T, Ex, Gp)Px = Price of the commodityPo = Price of other goodsNf = Number of firmsPf = Price of factor inputsT = Change in technologyEx = Expected future pricesGp = Government policy

DETERMINANTS OF SUPPLYNO.OF FIRM

TECHNOLOGY

COST OF

PRODUCTION

PRICE OF

RELATED

GOODS

PRICE EXPECTATIONS

DETERMINANTS OF SUPPLY

NATURAL FACTORS

LABOUR TROUBLE

CHANGE IN

GOVERNMENT

POLICY

EXPANSION AND CONTACTION OF SUPPLY CURVE•“ other things remaining equal , the supply of a commodity will expand if there rise in price and contracts if there is fall in price”

•Due to change in price•Movement along the supply curve ; only one supply curve

INCREASE AND DECREASE IN SUPPLY CURVE

•Shift in supply curve/change in supply curve

•Due to other factors technology,(number of firms, expected future prices, objective of the firm, price of competing goods etc..) 

•Price remains constant•The supply curve shifts itself from the original position-left or right

•More than one supply curve

WHY INCRAESE IN SUPPLY??•Improvement in technology• Reduction in price of factors of

production causing fall in cost of production

• When price of competing goods decreases

• Increase in number of firms in the market

• When the firm expects a fall in price of the commodity in near future

WHY DECREASE IN SUPPLY??

•When technology becomes obsolete causing rise in cost of production

• When factor prices increases causing rise in cost of production

•When prices of competing goods increases

• Decrease in number of firms in the market

•  When firm expects a rise in the commodity prices in the near future

TO SUM UP……

ATLEAST WAKE UP NOW….!!!!

•Ability + willingness to sell = supply

•Scarcity- problem of supply

•Direct relationship between price and quantity supplied- law of supply

MAKE A NOTE!!!!•Tabular representation –

supply schedule•Graphical representation-

supply curve•Exceptions- agricultural goods

, social distinction goods and perishable goods

•Expansion and contraction on the same supply curve and due to price

• Increase and decrease due to other factors