Chapter-3

Supply

Supply of a commodity means quantity of the commodity which is actually offered for sale at a given
price during some particular time.

Supply Function

Supply function is a functional relationship between quantity supplied of a commodity and factors
affecting it.

Factors Determining Supply

Price of commodity
Price of related good
Technological changes
Cost of production or price of inputs
Government policy or excise tax rate

Law Of Supply

According to the law of supply, other things remaining the same, quantity supplied of a commodity is
directly related to the price of the commodity.
In other words, other things remaining the same, when price of a commodity rises, its quantity supplied
increases and when the price falls, quantity supplied also falls.

Supply Schedule

Supply schedule is a tabular statement that gives the law of supply, i.e., the different quantity supplied of
a commodity at different prices per unit of time.

Supply Curve

Supply curve shows graphically the relationship between quantity supplied of a commodity to its price.

Reasons Behind Upward Sloping Supply Curve

Law of diminishing marginal productivity
Goal of profit maximization
Individual Supply vs. Market Supply
An individual supply indicates different quantities offered for sale by an individual firm at different
prices.
A market supply indicates total quantities of the commodity offered for sale by all the individual firms at
different prices in a particular time period.
Change In Quantity Supplied Vs. Change In Supply
Change In Quantity Supplied
Caused by changes in the price of the good, other
things remaining constant.

Change In Supply
Caused by changes in factors other than the price
of the good. These factors are:1) Price of other commodities
2) State of technology
3) Cost of production
4) Government policy

A movement along the supply curve.

No. new supply curve is drawn.
Movement along a supply curve can be of two
types:1) Expansion of supply
2) Contraction of supply
Expansion of Supply
Contraction
of
Supply
Rise in supply due to Fall in supply due to
rise in the price of the fall in the price of the
goods.
goods.

Upward movement

Downward movement

A shift in supply curve.

A new supply curve is drawn.
A shift of the supply curve can be of two types:1) Increase in supply
2) Decrease in supply
Increase in Supply

Decrease in demand

When supply of a
commodity rises due to
favorable changes in
factors other than price
of the commodity.

When supply of a
commodity falls due
to
unfavorable
changes in factors
other than price of the
commodity.
Causes of Decrease in
Supply:1) Obsolete
technique
of
production
2) Increase in the
price of related
goods
3) Increase in the
cost of production
4) Rise in excise tax
Decrease means same
supply at a higher
price or less supply at
the same price.
Leftward shift

Causes of Increase
Supply:1) Improvement
technique
production
2) Fall in the price
related goods
3) Fall in the cost
production
4) Fall in excise tax

in
in
of
of
of

Increase means more

supply at the same price
or same supply at a
lower price.
Rightward shift