O F

AW Y
L PPL
SU
 SUPPLY

Willing
Able totooffer
offertotothe
themarket
marketatatvarious
variousprices
pricesduring
duringperiod
periodofoftime
time
 SUPPLY

WhatIsfirm
a flow
offer
i.e.for
as sale,
per unit
notof
necessarily
time, per to
day,
what
per they
week,
succeed
or per year
in selling
 DEFINATIONS OF SUPPLY:
• Thomas:
The supply of good is the quantity offered for sale in a given
market at a given time at various prices

• Samuelson:
Supply refers to the amount of a good that producer in a given
market desire to sell, during a given time period at various prices,
ceteris paribus
DETERMINANTS OF SUPPLY:

Price of good

Price of related good

Price of the factors of production

State of technology

Government policy

Other factors
1. Price of the good:

o Ceteris paribus i.e. other things being equal

o Relative price of the good 

o Quantity supplied 

o This happens because goods are produced by the firm to gain profits

o Profits rises when price rises

2. Price of related good:

Rise in price of the related

goods make it more
profitable for the firm to
produce and sell
Price of related good(y)

Quantity supplied of other
good(x) 
 • 3. price of factor of production:
Changes
Changesin in
Producers relative
price
shift
profitability of
from one of
of factor line to
different lines of
another
production
production

Su
p
pli
es
of
di
ff
er
e
nt
co
m
m
o
di
ti
es
ch
an
ge
• 4. government policy:

o Imposition of commodities taxes increase the cost of production

o Subsidies reduces the cost of production which increases firm’s
supply
5. State of technology
6. Other factors
o Govt. industrial & foreign policies
o Goals of the firm
o Market structure, etc.
 LAW OF SUPPLY:
1 DOOLEY:
o Law of supply states that other things being equal, the higher the
price, the greater the quantity supplied or the lower the price, the
smaller the quantity supplied

2 Lipsey:
o The law of supply states that other things being equal, the
quantities of any commodity that firm will produce & offer for sale,
is positively related to the commodities own price, rising when
price rises & falling when price falls
 LAW OF SUPPLY:
o There is a direct relationship between price & quantity supplied:
o Quantity supplied rises as price rises, other things constant
o Quantity supplied falls as price falls, other things constant

o The law of supply is accounted for by 2 factors:

o When price rises, firms substitutes production of one good for another
o Assuming firm’s cost are constant, a higher price means higher profits
 LAW OF SUPPLY:
Behaviour of supply depend upon:
o Phenomenon considered

o Degrees of possible adjustment in supply

o Time taken into consideration i.e short run & long run
 SUPPLY SCHEDULE:

o Supply schedule is a series of quantities which a producer would like to

sell per unit of time at different prices

o Two aspects of supply schedule:-

• Individual supply schedule

• Market supply schedule
INDIVIDUAL SUPPLY SCHEDULE:
It is defined as a Price (rs)
(per kg)
Quantity supplied
(kg)

table which shows

1 10
quantities of a given
commodity which 2 30

an individual 3 50

producer will sell at

all possible prices at 4 70

a given time 5 80
 MARKET SUPPLY SCHEDULE:

o It is defined as the quantities of a given commodity which all

producers will sell at all possible prices at a given moment of
time

o In a market there are many producers of a single commodity

o By aggregating the individual supply, the market supply

schedule is constructed
 MARKET
Price of commodity Supply by supply by SUPPLY
‘x’ (in RS) A B (units)
100 40 50 40+50 = 90

200 60 70 60+70 = 130

300 65 80 65+80 = 145

400 80 100 80+100 = 180

o It indicates that when price of ‘x’ is RS 100 per unit, A’s supply is of
40 units and that of ‘B’ is of 50 units
o Thus the market supply is 90 units
o As the price increases, quantity supplied increases
 SUPPLY CURVE:
o A supply curve is a locus of points showing various price –
quantity combinations of a seller

o It shows the direct relationship between price and quantity

supplied

o It slopes upward to right

 EXCEPTION TO LAW OF SUPPLY:

1. Supply of labour:
o If we take the supply of labour at very high wages, we may find that
the supply of labour has decreased instead of increasing

2. Agricultural products:
o Since the production of agricultural products cannot be increased
beyond a certain limit, the supply cannot be increased beyond this limit
even on increase in their prices
• 3. Artistic goods:

• Supply of artistic goods cannot be increased or decreased easily

• 4. Goods of auction:
• Supply of goods of auction is limited as such cannot neither be increased nor
decreased

• 5. Hope of change in the prices of commodities in

near future:
• If the price of commodity is on rising pace, then the supply of such commodities
decreases as producers and sellers will like to store this commodity & vice -
versa
EXPANSION AND CONTRACTION IN
DEMAND:

EXPANSION
Qs  price 
Upward movement
along the supply curve

CONTRACTION
Qs  price 
Downward movement
along the supply curve
 INCREASE AND DECREASE IN
SUPPLY:

●
Q supplied  ( at all prices)due to
INCREASE ●
change in other factors
Rightward shift

●
Q supplied  ( at all prices) due
DECREASE ●
to change in other factors
Leftward shift
DEGREES OF PRICE ELASTICITY OF
SUPPLY:

Perfectly elastic
E=
 DETERMINANTS OF PRICE ELASTICITY
OF SUPPLY:
1. NATURE OF COMMODITY:

PERISHABLE
Inelastic
supply
DETERMINANTS OF PRICE ELASTICITY OF
SUPPLY:
• 2. TIME:

Very short Long period

Short period
period Highly
Elastic
Inelastic elastic
 DETERMINANTS OF PRICE ELASTICITY
OF SUPPLY:
• 3. PRODUCTION TECHNIQUE:

NOT COMPLICATED
Elastic supply

COMPLICATED
Inelastic supply