Chapter 9 Supply
Meaning: It refers to the quantity of a commodity which a supplier/ seller is always willing to sell at a given price in a given period of time
.Difference between Stock and Supply
Stock is a Stock concept which is measured at a given point of time.
Supply is a flow concept which is measured over a period of time.
Factors affecting supply OR Determinants of supply
(1). Price of the commodity itself: If the price of the commodity increases the supplier is willing to supply as his profit margin increases with the increase in price and vice-versa. therefore there is a direct relationship between price and supply.
(2). Technology: An advancement of technology leads to fall in the per unit cost of production, there by increasing the profit margin, leading to increase in supply and vice-versa.
(3). Change in price of input/ Price of factors of production: If price of inputs or factors of production increases it causes an increases in the cost of production and fall in profit.Therefor the supply falls and vice-versa.
(4).Taxation Policy: If the taxes imposed on production or on sales increases then the profit margin of the producer reduces. Thereby reducing the supply and vice-versa.
(5).Objectives of the firm: Sometimes the firm like to supply more not because of profit but because of profit but because of other objectives like sales maximization, social welfare etc. so the supply is based upon the objectives of the firm.
(6). Price of other related goods: Supply of a good is also influenced by the price of other related goods.
For example: A firm produces good A and good B and sells them at same price. Now if the price of good A increases then he would like to supply more of A and less of B.
With increase in price of one good the supply of other good reduces as A gives more profit.
- Supply Function: It refers to the functional relationship between supply and its factors.
- Law of Supply: Other factors being constant price and supply are directly related.
- Assumption of Law of Supply:
(1). Technology remains same.
(2). Taxation policy remains same.
(3). Price of inputs remains same.
(4). Objectives of the firm remains same.
- Supply Schedule:
- Supply Curve:
- Market Supply: It refers to the quantity of a commodity which all the sellers in a market are willing to supply at a given price in a given period of time.
Factors Affecting Market Supply
(1). Price of the commodity itself: (Explained above)
(2). Technology: (Explained above)
(3). Price of inputs:(Explained above)
(4). Price of the other related goods: (Explained above)
(5). Taxation Policy: (Explained above)
(6). Objectives of the firm: (Explained above)
(7). Number of producer/ sellers: More the number of seller in a market more the market supply.
- Market Supply Schedule: It is the tabular presentation showing how much is being supplied at different prices by all the producers in a market.
- Market Supply Curve: It is the graphical representation of the market supply curve.
Difference between Change in quantity supply and change in supply.
- Price Elasticity of Supply: It refers to the degree of responsiveness of supply to change in price of commodity.
ES = %change in Quantity Supply/ % change in Price
Factors Affecting Elasticity of supply
(1). Change in cost of production: If price increases and producer show interest in increasing the supply, but if it cause more cost of production, the supply is less elastic and vice-versa.
(2). Nature of commodity: Agriculture goods have a less elastic supply as compared to industrial goods.
(3). Time period: Generally in short period the supply is less elastic whereas it tends to be elastic in long period.
Degree of Elasticity of Supply
- Perfectly inelastic supply: Here quantity supply does not respond to a price change.
Schedule:
Diagram:
- Perfectly elastic supply: Here supply expands or contracts without a price change.
Schedule:
Diagram:
- Unit elastic supply: Here % change in quantity supply is equal to the % change in the price.
Schedule:
Diagram:
- Less than unit elastic supply: Here % change in supply is less than the % change in price.
Schedule:
Diagram:
- More than unit elastic: Here % change in quantitly supply is more than % change in price.
Schedule:
Diagram:
Measurement of Elasticity of supply
(1). Percentage Method: It measures elasticity of supply as the ratio of percentage change in quantity supply of the commodity due to percentage change in price of the commodity.
Es = %change in Q.S
%change in price
= change in Q.S * 100
change in quantity
change in price * 100
original price
= change in Q
Q
change in P
P
= change in Q * P
Q change in P
= change in Q * P
change in p Q
("*" this is the symbol of multiplication)
(Es is always positive because price and supply are directly related.)
Meaning: It refers to the quantity of a commodity which a supplier/ seller is always willing to sell at a given price in a given period of time
.Difference between Stock and Supply
Stock is a Stock concept which is measured at a given point of time.
Supply is a flow concept which is measured over a period of time.
Factors affecting supply OR Determinants of supply
(1). Price of the commodity itself: If the price of the commodity increases the supplier is willing to supply as his profit margin increases with the increase in price and vice-versa. therefore there is a direct relationship between price and supply.(2). Technology: An advancement of technology leads to fall in the per unit cost of production, there by increasing the profit margin, leading to increase in supply and vice-versa.
(3). Change in price of input/ Price of factors of production: If price of inputs or factors of production increases it causes an increases in the cost of production and fall in profit.Therefor the supply falls and vice-versa.
(4).Taxation Policy: If the taxes imposed on production or on sales increases then the profit margin of the producer reduces. Thereby reducing the supply and vice-versa.
(5).Objectives of the firm: Sometimes the firm like to supply more not because of profit but because of profit but because of other objectives like sales maximization, social welfare etc. so the supply is based upon the objectives of the firm.
(6). Price of other related goods: Supply of a good is also influenced by the price of other related goods.
For example: A firm produces good A and good B and sells them at same price. Now if the price of good A increases then he would like to supply more of A and less of B.
With increase in price of one good the supply of other good reduces as A gives more profit.
- Supply Function: It refers to the functional relationship between supply and its factors.
- Law of Supply: Other factors being constant price and supply are directly related.
- Assumption of Law of Supply:
(1). Technology remains same.
(2). Taxation policy remains same.
(3). Price of inputs remains same.
(4). Objectives of the firm remains same. - Supply Schedule:
- Supply Curve:
- Market Supply: It refers to the quantity of a commodity which all the sellers in a market are willing to supply at a given price in a given period of time.
Factors Affecting Market Supply
(1). Price of the commodity itself: (Explained above)(2). Technology: (Explained above)
(3). Price of inputs:(Explained above)
(4). Price of the other related goods: (Explained above)
(5). Taxation Policy: (Explained above)
(6). Objectives of the firm: (Explained above)
(7). Number of producer/ sellers: More the number of seller in a market more the market supply.
- Market Supply Schedule: It is the tabular presentation showing how much is being supplied at different prices by all the producers in a market.
- Market Supply Curve: It is the graphical representation of the market supply curve.
Difference between Change in quantity supply and change in supply.
- Price Elasticity of Supply: It refers to the degree of responsiveness of supply to change in price of commodity.
ES = %change in Quantity Supply/ % change in Price
Factors Affecting Elasticity of supply
(1). Change in cost of production: If price increases and producer show interest in increasing the supply, but if it cause more cost of production, the supply is less elastic and vice-versa.(2). Nature of commodity: Agriculture goods have a less elastic supply as compared to industrial goods.
(3). Time period: Generally in short period the supply is less elastic whereas it tends to be elastic in long period.
Degree of Elasticity of Supply
- Perfectly inelastic supply: Here quantity supply does not respond to a price change.
Schedule:
Diagram:
- Perfectly elastic supply: Here supply expands or contracts without a price change.
Schedule:
Diagram: - Unit elastic supply: Here % change in quantity supply is equal to the % change in the price.
Schedule:
Diagram: - Less than unit elastic supply: Here % change in supply is less than the % change in price.
Schedule:
Diagram: - More than unit elastic: Here % change in quantitly supply is more than % change in price.
Schedule:
Diagram:
Measurement of Elasticity of supply
(1). Percentage Method: It measures elasticity of supply as the ratio of percentage change in quantity supply of the commodity due to percentage change in price of the commodity.
Es = %change in Q.S
%change in price
= change in Q.S * 100
change in quantity
change in price * 100
original price
= change in Q
Q
change in P
P
= change in Q * P
Q change in P
= change in Q * P
change in p Q
("*" this is the symbol of multiplication)
(Es is always positive because price and supply are directly related.)
Thanku for notes it's really helpful .
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