JVM SUPPLY

JVM INSTITUTE BY LALIT KUKREJA JI 9213922047,9899009023
CHAPTER 9– SUPPLY
A. MEANING OF SUPPLY
 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.
 The definition of supply highlights 4 essential elements:
a) Quantity of a commodity
b) Willingness to sell
c) Price of the commodity
d) Period of time
B. DIFFERENCE BETWEEN STOCK AND SUPPLY
STOCK SUPPLY
Stock means the total amount of any item that is Supply refers to the quantity , which a producer is willing
available to the producer for more sales to offer for sale , which change with change in price
Stock always more than supply Supply always lesser then stock
The stock is not related to the price of the item, it is Supply is related to the price of goods
related to the potential demand.
Stock is measured at a point of time. Supply is measured at a period of time per unit.
C. MEANING OF INDIVIDUAL SUPPLY

Individual 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.
D. DETERMINANT OF SUPPLY:-
1. Price of the given Commodity:
a) The most important factor determining the supply of a commodity is its price.
b) As a general rule, price of a commodity and its supply are directly related.
c) It means, as price increases, the quantity supplied of the given commodity also rises and vice-versa.
d) It happens because at higher prices, there are greater chances of making profit.
e) It induces the firm to offer more for sale in the market.
2. Prices of Other Goods:
a) As resources have alternative uses, the quantity supplied of a commodity depends not only on its price, but
also on the prices of other commodities.
b) Increase in the prices of other goods makes them more profitable in comparison to the given commodity.
c) As a result, the firm shifts its limited resources from production of the given commodity to production of
other goods.
d) For example, increase in the price of other good (say, wheat) will induce the farmer to use land for
cultivation of wheat in place of the given commodity (say, rice).
3. Prices of Factors of Production (inputs):
a) When the amount payable to factors of production and cost of inputs increases, the cost of production also
increases. This decreases the profitability.
b) As a result, seller reduces the supply of the commodity.
c) On the other hand, decrease in prices of factors of production or inputs, increases the supply due to fall in
cost of production and subsequent rise in profit margin.
d) To make ice-cream, firms need various inputs like cream, sugar, machine, labour, etc. When price of one or
more of these inputs rises, producing ice-creams will become less profitable and firms supply fewer ice-
creams.
JVM INSTITUTE 9899009023, 9213922047 Page 1

4. State of Technology:
a) Technological changes influence the supply of a commodity.
b) Advanced and improved technology reduces the cost of production, which raises the profit margin. It
induces the seller to increase the supply.
c) However, technological degradation or complex and outdated technology will increase the cost of
production and it will lead to decrease in supply.
5. Government Policy (Taxation Policy):
a) Increase in taxes raises the cost of production and, thus, reduces the supply, due to lower profit margin.
b) On the other hand, tax concessions and subsidies increase the supply as they make it more profitable for the
firms to supply goods.
6. Goals / Objectives of the firm:
a) Generally, supply of a commodity increases only at higher prices as it fulfills the objective of profit
maximization.
b) However, with change in trend, some firms are willing to supply more even at those prices, which do not
maximise their profits.
c) The objective of such firms is to capture extensive markets and to enhance their status and prestige.
E. Individual Supply Function

 Individual supply function refers to the functional relationship between supply and factors affecting the supply of
a commodity.
 It is expressed as: Sx= f (Px, PO, Pf St, T, G)
Where,
Sx= Supply of the given commodity x; P x= Price of given commodity x;
Po = Price of other goods; Pf = Prices of factors of production;
St = State of technology; T = Taxation policy;
G= Goals of the firm.
F. Individual Supply Schedule

 Individual supply schedule 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.
 Table 9.1 shows a hypothetical supply schedule for commodity V.
Table 9.1: Individual Supply Schedule
Price ( ` ) Quantity supplied of
good x (units)
1 5
2 10
3 15
4 20
5 25
As seen in the schedule,
 quantity supplied of commodity x increases with increase in price. The producer is willing to sell 5 units of x at a
price of ` 1. When the price rises to ` 2, supply also rises to 10 units.
G. Individual Supply Curve
 Individual supply curve refers to a graphical representation of individual supply schedule.
 Supply curve 'SS' in Fig. 9.1 is obtained by plotting the points shown in Table 9.1. At each possible price, there is
a quantity, which the firm is willing to sell. By joining all the points (A to E), we get a curve that slopes upwards.

 The supply curve SS slope upwards due to positive relationship between price and quantity supplied.
H. MEANING OF MARKET SUPPLY

 Market Supply refers to quantity of a commodity that all firm is willing and able to offer for sale at a given price
during a given period of time.
I. DETERMINANTS OF MARKET SUPPLY:-

1. Number of Firms in the market:
a) When the number of firms in the industry increases, market supply also increases due to large number
of producers producing that commodity.
b) However, market supply will decrease, if some of the firms start leaving the industry due to losses.
2. Future Expectation regarding price
a) If sellers expect a rise in price in near future, then current market supply will decrease in order to raise
the supply in future at higher prices.
b) However, if the sellers fear that the prices will fall in the future, then they will increase the present
supply to avoid losses in future.
3. Means of Transportation and Communication:
a) Proper infrastructural development, like improvement in the means of transportation and
communication, help in maintaining adequate supply of the commodity.
J. MARKET SUPPLY FUNCTION

 Market supply function refers to the functional relationship between market supply and factors affecting the
market supply of a commodity.
 As discussed before, market supply is affected by all the factors affecting individual supply.
 In addition, it is also affected by some other factors like number of firms, future expectations regarding price and
means of transportation and communication.
Market supply function is expressed as:
Sx = f (Px/ Po, Pf St, T, G, N, F, M)
Where,
Sx = Market supply of given commodity x; Px = Price of the given commodity x;
P0 = Price of other goods; Pf = Prices of factors of production;
St= State of technology; T= Taxation policy;
G= Goals of the market; N= Number of firms;
F = Future expectation regarding Px;
M = Means of transportation and communication.

K. Market Supply Schedule

 Market supply schedule 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. It is obtained by adding all
the individual supplies at each and every level of price.
 Market supply schedule is expressed as: S m = SA + SB +.........................
 Where Sm is the market supply and SA + SB +............are the individual supply of supplier A, supplier
B and so on.
 Let us understand the derivation of market supply schedule with the help of Table 9.2 (Assuming, there are only
2 producers: A and B in the market):
Table 9.2: Market Supply Schedule
Price ( ` ) Individual Supply (units) Market Supply
Px SA SB (units) {SA + SB}
1 5 10 5+10=15
2 10 20 10 + 20=30
3 15 25 15 + 25 = 40
4 20 35 20 + 35 = 55
5 25 40 25 + 40 = 65
As seen in Table 9.2,
 market supply is obtained by adding the supplies of suppliers A and B at different prices. At price of ` 1, market
supply is 15 units. When price rises to rs2, market supply rises to 30 units. So, market supply schedule also
shows the direct relationship between price and quantity supplied.
L. Market Supply Curve
 Market supply curve refers to a graphical representation of market supply schedule. It is obtained by horizontal
summation of individual supply curves.
 The points shown in Table 9.2 are graphically represented in Fig. 9.2. S A and SB are the individual supply curves.
Market supply curve (SM) is obtained by horizontal summation of the individual supply curves (S A and SB).
 Market supply curve 'SM' is also positively sloped due to positive relationship between price and quantity
supplied.
Market Supply Curve is Flatter
 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.
M. LAW OF SUPPLY
 Law of supply states the direct relationship between price and quantity supplied, keeping other factors constant
(ceteris paribus).

 As price of the commodity increases, there is more supply of that commodity in the market and vice-versa. This
behaviour of producers is studied under the law of supply.
Assumptions of Law of Supply
While stating law of supply, the phrases ‘keeping other factors constant or ceteris paribus’ are used.
This phrase is used to cover the following assumptions on which the law is based:
1. Price of other goods are constant;
2. There is no change in the state of technology;
3. Prices of factors of production remain the same;
4. There is no change in the taxation policy;
5. Goals of the producer remain the same.
Law of supply can be better understood with the help of Table 9.3 and Fig. 9.3:
Table 9.3: Supply Schedule

Price (in ` ) Quantity (in units)
1 10
2 20
3 30
4 40
5 50
Table 9.3 clearly shows that more and more units of the commodity are being offered for sale as the price of the
commodity is increased. As seen in Fig. 9.3, supply curve SS slope upwards from left to right, indicating direct
relationship between price and quantity supplied.
Important Points about Law of Supply
(i) It states the positive relationship between price and quantity supplied, assuming no changes in other
factors.
(ii) It is a qualitative statement, as it indicates the direction of change in the quantity supplied, but it does
not indicate the magnitude of change.
(iii) It does not establish any proportional relationship between change in price and the resultant change in
quantity supplied.
(iv) 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.
N. Reasons for Law of Supply

Let us now try to understand, why the supply of a commodity expands as the price rises. The main reasons for operation
of law of supply are:
1. Profit Motive:
a) The basic aim of producers, while supplying a commodity, is to secure maximum profits.
b) When price of a commodity increases, without any change in costs, it raises their profits.
c) So, producers increase the supply of the commodity by increasing the production.

d) On the other hand, with fall in prices, supply also decreases as profit margin decreases at low prices.
2. Change in Number of Firms:
a) A rise in price induces the prospective producers to enter into the market to produce the given commodity
so as to earn higher profits.
b) Increase in number of firms raises the market supply. However, 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 the given commodity as the number of firms in the market decreases.
3. Change in Stock:
a) When the price of a good increases, the sellers are ready to supply more goods from their stocks.
b) However, at a relatively lower price, the producers do not release big quantities from their stocks.
c) They start increasing their inventories with a view that price may rise in near future.
O. Exceptions to Law of Supply

The various exceptions to the law of supply are:
1. Future Expectations:
a) If sellers expect a fall in price in the future, then the law of supply may not hold true. In this situation, the
sellers will be willing to sell more even at a lower price.
b) However, if they expect the price to rise in the future, they would reduce the supply of the commodity, in
order to supply the commodity later at a high price.
2. Agricultural Goods:
a) The law of supply does not apply to agricultural goods as their production depends on climatic conditions.
b) If, due to unforeseen changes in weather, the production of agricultural products is low, then their supply
cannot be increased even at higher prices.
3. Perishable Goods:
a) In case of perishable goods, like vegetables, fruits, etc., sellers will be ready to sell more even if the prices
are falling.
b) It happens because sellers cannot hold such goods for long.
4. Rare Articles:
a) Rare, artistic and precious articles are also outside the scope of law of supply.
b) For example, supply of rare articles like painting of Mona Lisa cannot be increased, even if their prices are
increased.
5. Backward Countries:
a) In economically backward countries, production and supply cannot be increased with rise in price due to
shortage of resources.
P. DIFF. b/w CHANGE IN QUANTITY SUPPLY AND CHANGE IN SUPPLY
Basis Change in Quantity Supplied Change in Supply
Meaning When the quantity supplied changes When the supply changes due to
due to change in price, keeping change in any factor other than the
other factors constant, it is known as own price of the commodity, it is
change in quantity supplied. known as change in supply.
Effect on It leads to a movement along the It leads to shift in the supply curve
supply curve same supply curve (see Fig. 9.4) (see Fig. 9.7) either rightward
either upward (known as Expansion (known as Increase in supply) or
in supply) or downward (known as leftward (known as decrease in
Contraction in supply). supply).
Reason It occurs due to an increase or It occurs due to a change in other
decrease in the price of the given factors, like change in the price of
commodity. inputs, change in taxes, change in
technology etc.

Graph
Q. DIFFERENCE BETWEEN MOVEMENT ALONG SUPPLY CURVE AND SHIFT IN SUPPLY

CURVE:-
Basis Movement along Supply Curve Shift in Supply Curve
Meaning When the quantity supplied changes When the supply changes due to
due to change in price, keeping change in any factor other than the
other factors constant, it leads to a own price of the commodity, it leads
movement along the supply curve. to a shift in supply curve.
Effect on The movement is along the same The shift in the supply curve (see Fig.
supply curve supply curve (see Fig. 9.4) either 9.7) is either rightward (known as
upward (known as Expansion in Increase in supply) or leftward
supply) or downward (known as (known as decrease in supply).
Contraction in supply).
Reason It occurs due to an increase or It occurs due to a change in other
decrease in the price of the given factors, like change in the price of
commodity. inputs, change in taxes, change in
technology etc.

R. DIFFERENCE BETWEEN EXPANSION IN SUPPLY AND CONTRACTION IN SUPPLY

S.
Basis Expansion in Supply Contraction in Supply
Meaning When the quantity supplied rises When the quantity supplied falls due to
due to an increase in the price, a decrease in the price, keeping other
keeping other factors constant, it is factors constant, it is known as
known as expansion in supply. contraction in supply.
Tabular Price Price Supply Supply
Presentation ( ` ) (`) (Units) (Units)
10 12 150 100
12 10 100 150
Effect on There is an upward movement (see There is a downward movement (see
supply curve Fig. 9.5) along the same supply Fig. 9.6) along the same supply curve.
curve.
Reason It occurs due to increase in price of It occurs due to decrease in price of the
the given commodity. given commodity.
Graph
T. DIFFERENCE BETWEEN INCREASE IN SUPPLY AND DECREASE IN SUPPLY

Basis Increase in Supply Decrease in Supply
Meaning Increase in supply refers to a rise in Decrease in supply refers to a fall in
the supply of a commodity caused due the supply of a commodity caused due
to any factor other than the own price to any factor other than the own price
of the commodity. of the commodity.
Tabular Price Price Supply Supply
Presentation ( ` ) (`) (Units) (Units)
10 12 150 100
10 12 100 150
Effect on There is a rightward shift (see Fig. 9.8) There is a leftward shift (see Fig. 9.9)
supply curve in the supply curve. in the supply curve.
Reason It occurs due to other factors like It occurs due to other factors like
decrease in the price of inputs, increase in the price of inputs,
decrease in taxes, technological increase in taxes, technological
upgradation etc. degradation etc.

EFFECT ON SUPPLY CURVE (DUE TO CHANGES IN OTHER FACTORS) ______
Change in Prices of other Goods
The quantity supplied of the given commodity depends not only on its price, but also on the prices of other goods.
'Increase' and 'Decrease' in prices of other goods shifts the original supply curve of given commodity.
(i) 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 from OQ to OQ1 at the same price OP.
 It leads to a leftward shift in the supply curve from SS to S1S1.
(ii) Decrease in Price of other goods:

 Fall in prices of other goods make production of the given commodity more profitable and
 it increases its supply from OQ to OQ1 at the same price OP.
 It leads to a rightward shift in the supply curve from SS to S 1S1.
Change in Price of Factors of Production

Price of the factors of production forms a major part of the cost of producing a commodity. With a change (increase or
decrease) in the amount payable to factor inputs, supply curve of the commodity also changes.
(i) Increase in Price of Factors of Production:
 Rise in price of factors of production increases the cost of production and reduces the profit margin.

(ii) Decrease in Price of Factors of Production:
 When price of factors of production falls, cost of production falls and profit margin rises.
 It increases the supply from OQ to OQ1 at the same price OP.
Change in the State of Technology

Technological changes affect the cost of production, which directly influences the supply of the commodity. Supply
increases with technological advancement, whereas, any degradation of technology reduces the supply.
(i) Upgradation of Technology:
 Advanced and improved technology reduces the cost of production and raises the profit margin.
 Supply rises from OQ to OQ1 at the same price OP.
(ii) Degradation of Technology:

 Technological degradation or complex and outdated technology leads to rise in cost of production and fall in
profit margin, It decrease the supply from OQ to OQ 1 at the same price OP.
 As a result, supply curve shift towards left from SS to S1S1.

Change in Taxation Policy
Taxes directly affect the cost of producing a commodity. With a change (increase or decrease) in taxes, supply curve of
the given commodity changes.
(i) Increase in Taxes:
 Rise in taxes increases the cost of production and reduces the profit margin.
(ii) Decrease in Taxes:

 When taxes falls, cost of production falls and profit margin rises.
 It increases the supply from OQ to OQ1 at the same price OP.
Rightward and Leftward Shift in Supply Curve

 In addition to the mentioned factors, supply curve of the given commodity also shifts due to change factors, like
change in goals, change in number of firms, etc. Let us have a graphical review of all the factors, which lead to a
rightward shift (Fig. 9.18) and a leftward shift (Fig. 9.19) in the supply curve.
Supply curve shifts towards right due to:
1. Decrease in price of other goods;
2. Decrease in price of factors of production
(inputs);
3. Advanced and improved technology;
4. Favourable taxation policy (decrease in
taxes);
5. Goal of sales maximization;
6. Increase in number of firms;
7. Expectation of fall in prices in future;
8. Improvement in means of transport and
communication.

Supply curve shifts towards left due to:
1. Increase in price of other goods;
2. Increase in price of factors of
production (inputs);
3. Complex and outdated technology;
4. Unfavourable taxation policy (increase
in taxes);
5. Goal of profit maximization;
6. Decrease in number of firms;
7. Expectation of rise in prices in future;
8. Poor means of transport and
communication.
PRICE ELASTICITY OF SUPPLY

INTRODUCTION
This concept is parallel to the concept of price elasticity of demand. It points out the reaction of the sellers to a
particular change in the price of the commodity. It explains the quantitative changes in supply of a commodity,
due to a given change in the price of the commodity.
MEANING OF PRICE ELASTICITY OF SUPPLY

Price elasticity of supply refers to degree of responsiveness of supply of a commodity with reference to change in
the price of such commodity.
METHODS FOR MEASURING PRICE ELASTICITY OF SUPPLY

Percentage Method
According to this method, elasticity is measured as the ratio of percentage change in the quantity supplied to
percentage change in the price.
Where:
1 • Percentage change in Quantity supplied =

2. Change in Quantity (AQ) = New Quantity (Q 1)-Initial Quantity (Q)
4. Change in Price (AP) = New Price(P 1)-Initial Price (P)

Proportionate Method
The percentage method can also be converted into the proportionate method. Putting the values of 1,2,3 and 4
in the formula of percentage method, we get:

Elasticity of Supply (Proportionate Method) =

Where:
Q = Initial Quantity Supplied
Q = Change in Quantity Supplied
P = Initial Price
P = Change in Price
Price Elasticity of Supply is Positive?
Elasticity of supply will always have a positive sign as against the negative sign of elasticity of demand. It
happens because of the direct relationship between price and quantity supplied.
KINDS OF ELASTICITIES OF SUPPLY
Different commodities respond differently to a given change in price. Depending upon the degree of responsiveness
of the quantity supplied to the price change, there are five kinds of price elasticities of supply.
1. Perfectly Elastic Supply:
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.
In such a case Es =  and the supply curve is a horizontal straight line parallel to the X-axis, as shown in Fig.
9.23:
Table 9.8: Perfectly Elastic Supply

Price (in ` ) Supply (in units)
30 100
30 200
30 300
Quantity supplied can be 100, 200 or 300 units at the same price of rs. 30. As seen in the diagram, quantity
supplied can be OQ or OQ1 or OQ2 at the same price of OP. It must be noted that perfectly elastic supply is an
imaginary situation.
2. Perfectly Inelastic Supply:
 When the supply does not change with change in price, then supply for such a commodity is said to be
perfectly inelastic.

In such a case, Es = 0 and the supply curve (SS) is a vertical straight line parallel to the Y-axis as shown in Fig.
9.24.
Table 9.9: Perfectly Inelastic Supply
Price (in ` ) Supply (in
units)
20 20
30 20
40 20
Quantity supplied remains same at 20 units, whether the price is `20, `30 or `40. As seen in the diagram,
quantity supplied remains the same at OQ, with change in price from OP to OP 1 or OP2. It must be noted that
perfectly inelastic supply is an imaginary situation.
3. Highly Elastic Supply:
 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.
 In such a case, Es > 1 and the supply curve has an intercept on the Y-axis as shown in Fig. 9.25.
Table 9.10: Highly Elastic Supply

10 100
15 200
As seen in the schedule, the quantity supplied rises by 100% due to a 50% rise in price. In Fig. 9.25, the quantity
supplied rises from OQ to OQ1 with rise in price from OP to OP1. As QQ1 is proportionately more than PP1,
elasticity of supply is more than 1.
4. Less Elastic Supply:
 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.
 In such a case, Es < 1 and the supply curve has an intercept on the X-axis as shown in Fig. 9.26.
Table 9.11: Less Elastic Supply
10 100
15 120

In Table 9.11, the quantity supplied rises by 20 % due to 50% rise in price. In Fig. 9.26, the quantity supplied rises
from OQ to OQ1 with rise in price from OP to OP1 As QQ1 is proportionately less than PP:, elasticity of supply is
less than 1.
5. Unitary Elastic Supply:
 When percentage change in quantity supplied is equal to percentage change in price, then supply for
such a commodity is said to be unitary elastic.
 In such a case, Es = 1 and supply curve is a straight line passing through the origin as shown in Fig. 9.27;
Table 9.12: Unitary Elastic Supply
10 100
15 150
In Table 9.12, the quantity supplied also rises by 50% due to 50% rise in price. In Fig. 9.27, the quantity supplied
rises from OQ to OQ1 with rise in price from OP to OP1. As QQ1 is proportionately equal to PP1, Es = 1.
Important Observations
1. All the supply curves, which pass through the origin are unitary elastic:
 In Fig. 9.28, A, B and C are the supply curves of three different commodities.
 The price elasticity of supply for all 3 curves is equal to one.
 Although A is steeper and C is flatter, but elasticity will be equal to one.
 It means, any straight line supply curve, which passes through the origin has unitary elastic supply
(proved under geometric method), irrespective of the angle it makes with the origin.

2. Flatter the curve, more is the Elasticity at the point of intersection:
 In Fig. 9.29, supply curves SS (flatter curve) and S1S1 (steeper curve) intersect each other at point E.
 At point E, OQ quantity is supplied at the price of OP.
 When price falls from OP to OP1, quantity supplied falls from OQ to OQ2 for supply curve SS and from OQ
to OQ1 for supply curve S1S1.
 Now, with the same change in price (PP 1), change in supply (QQ2) in case of supply curve SS is more than
change in supply (QQ1) under supply curve S1S1.
It means supply is more elastic in case of SS (flatter curve) as compared to S 1S1 (steeper curve).
Quick Recap - Coefficients of Es
Type Value Description
Perfectly Elastic (Es= ) Infinite supply at same price
Perfectly Inelastic (Es = 0) Same supply at all prices
Highly Elastic (Es>1) %  in Supply > %  in Price
Less Elastic (Es<1) %  in Supply < %  in Price
Unitary Elastic (ES = D %  in Supply = %  in Price
REVISION OF KEY POINTS

• Individual Supply 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.
• Market Supply 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.
• Stock refers to the total quantity of a particular commodity available with the firm at a particular point of time.
• Determinants of Supply: (1) Price of the given commodity; (2) Prices of other goods; (3) Price of factors of production; (4) State
of technology; (5) Government Policy; (6) Goals of the firm.
• Supply function refers to functional relationship between supply and factors affecting the supply of a commodity.
• Supply schedule refers to a table which shows various quantities of a commodity that a producer is willing to sell at different
prices, during a given period of time.

• Supply curve refers to the graphical representation of supply schedule.
• Law of supply states the direct relationship between price and quantity supplied, keeping other factors constant.
• Reasons for Law of supply: (1) Profit Motive; (2) Change in the Number of Firms; (3) Change in Stock
• Exceptions to Law of supply: (1) Future Expectations; (2) Agricultural Goods; (3) Perishable Goods; (4) Rare Goods; (5) Backward
Countries
• Movement along the Supply Curve occurs, when quantity supplied changes due to change in the price, keeping other factors
constant.
• Shift in Supply Curve occurs, when the supply changes due to change in any factor other than the own price of the commodity.
• Reasons for shift in supply curve: (1) Change in Price of other goods; (2) Change in price of factors of production; (3) Change in
state of technology; (4) Change in taxation policy; (5) Change in goals of the firm; (6) Change in the number of firms; (7)
Expectation of change in price in the future.
• Expansion in Supply means a rise in the quantity supplied due to increase in price, keeping other factors constant.
• Contraction in Supply means a fall in the quantity supplied due to decrease in price, keeping other factors constant.
• 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.
• 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.
• Price Elasticity of Supply refers to the degree of responsiveness of supply of a commodity with reference to a change in price of
such commodity. It is always positive due to direct relationship between price and quantity supplied.
• Methods for measuring price elasticity of supply: (1) Percentage Method; (2) Geometric method.
• Degrees of Price Elasticity of supply
 Perfectly Elastic Supply: When there is an infinite supply at a particular price and supply becomes zero with a slight fall
in price.
 Perfectly Inelastic Supply: When supply does not change with change in price.
 Highly Elastic Supply: When % change in quantity supplied > % change in price.
 Less Elastic Supply: When % change in quantity supplied < % change in price.
 Unitary Elastic Supply: When % change in quantity supplied = % change in price.
• Factors affecting Elasticity of Supply: (1) Nature of the commodity; (2) Cost of production; (3) Time period; (4) Techniques of
production; (5) Nature of the inputs used; (6) Natural factors.
THE END
A. Multiple Choice Questions: Choose the Correct Answer

1. Which of the following statements is correct?
(a) There is difference between supply and stock
(b) Supply does not depend on government's tax policy
(c) Stock refers to the quantity which comes to market for sale
(d) Stock and supply are always equal
2. Graphical presentation of supply curve of an individual firm in the market is called:

(a) producer's demand curve (b) consumer's demand curve
(c) individual supply curve (d) market supply curve
3. The entire schedule showing various quantities offered for sale at different possible prices of the commodity is called:
(a) quantity supplied (b) supply
(c) individual supply (d) none of these
4. According to law of supply:

(a) there is positive relation between supply and price
(b) there is negative relation between supply and price
(c) there is constant relation between supply and price
(d) there is no relation between supply and price

5. Expansion of supply occurs due to change in:
(a) goal of the firm (b) own price of the commodity
(c) number of firms (d) technique of production
6. The law of supply does not apply to:

(a) agricultural products (b) industrial products
(c) perishable commodities (d) both (a) and (c)
7. Supply curve shifts forward due to:

(a) decrease in factor price (b) increase of firms in the market
(c) high business expectations (d) all of these
8. Movement along the supply curve occurs due to:

(a) increase in own price of the commodity
(b) decrease in own price of the commodity
(c) factors other than own price of the commodity
(d) both (a) and (b)
9. Increase in quantity supplied due to rise in price is called:

(a) increase in supply (b) decrease in supply
(c) extension of supply (d) none of these
10. When supply falls due to factors other than own price of the commodity, it indicates:
(a) contraction of supply (b) decrease in supply
(c) extension of supply (d) none of these
11. In case of contraction of supply, we move:

(a) to right on the another supply curve (b) from lower point to upper point
(c) from upper point to lower point (d) both (b) and (c)
12. In case of increase in supply, we move:

(a) to right on another supply curve
(b) to left on another supply curve
(c) from upper point to lower point of the supply curve
(d) from lower point to upper point of the supply curve
13. Imposition of a unit tax, shifts the supply curve:

(a) to the right (b) to the left
(c) to the right as well as to the left (d) none of these
14. Subsidy on the production of a commodity causes:

(a) increase in supply (b) decrease in supply
(c) no change in supply (d) both (a) and (b)
15. When supply curve is a vertical straight line, it indicates:

(a) unitary elastic supply (b) perfectly elastic supply
(c) perfectly inelastic supply (d) relatively elastic supply
16. A straight line supply curve passing through the origin forming an angle of 60° indicates:
(a) Es = 0 (b) Es = 1

(c) Es > 1 (d) Es < 1
17. An upward sloping straight line supply curve shooting from the X-axis indicates that:
(a) elasticity of supply is equal to zero
(b) elasticity of supply is equal to one
(c) elasticity of supply is greater than one
(d) elasticity of supply is less than one
18. When supply curve is parallel to X-axis, elasticity of supply is:

(a) zero (b) infinity
(c) unity (d) negative
19. Supply is more elastic in case of:

(a) very short period (b) short period
(c) long period (d) both (b) and (c)
20. The supply of durable goods is usually:

(a) more elastic (b) less elastic
(c) perfectly elastic (d) perfectly inelastic
21. In case of Es > 1, the supply curve is:

(a) a horizontal straight line parallel to X-axis
(b) a vertical straight line parallel to Y-axis
(c) a straight line starting from Y-axis
(d) a straight line starting from X-axis
22. When market supply (assuming only three sellers in the market) is 120 units, and sum total of individual supply of two
sellers is 76 units, the supply of third individual seller will be:
(a) 44 units (b) 196 units
(c) 50 units (d) 200 units
23. If 18% fall in price of the commodity causes 27% decrease in its supply, elasticity of supply will be:
(a) 1.5 (b) 0.5
(c) 0.67 (d) 2.5
24. When 15% increase in price of the commodity causes 10% increase in the quantity supplied, then elasticity of supply is:
(a) elastic (b) inelastic
(c) perfectly elastic (d) perfectly inelastic
25. If Es = 0.6, and the percentage change in price = 5, then percentage change in quantity supplied is:
(a) 8.33 (b) 4.4
(c) 5.6 (d) 3
Answers
1. (a) 2. (c) 3. (b) 4. (a) 5. (b) 6. (d) 7. (d) 8. (d) 9. (c) 10. (b)
11. (c) 12. (a) 13. (b) 14. (a) 15. (c) 16. (b) 17. (d) 18. (b) 19. (c) 20. (a)
21. (c) 22. (a) 23. (a) 24. (b) 25. (d).

CBSE Questions (Past 4 years) and Reference to the Text for Answers
1. Define supply. [CBSE Delhi 2011; (F) 2014]
2. What is meant by 'increase' in supply? [CBSE Delhi 2011]
3. Define 'market supply'. What is the effect on the supply of a good when government imposes a tax on the production of
that good? Explain. [CBSE Delhi 2011]
4. What is a supply schedule? What is the effect on the supply of a good when government gives a subsidy on the production
of that good? Explain. [CBSE Delhi 2011]
Or
How does subsidy influence the supply of a good by a firm? Explain. [CBSE (F) 2014]
5. What is 'decrease' in supply? [CBSE (AI) 2011]
6. Give meaning of 'change in quantity supplied'. [CBSE (F) 2011]
7. What is a supply schedule? Explain how does change in technology of producing a good affect the supply of that good.
[CBSE (F) 2011]
Or
Explain how technological progress is a determinant of supply of a good by a firm. [CBSE (AI) 2014]
8. Define supply curve. How does fall in price of an input affect the supply of the good using that input? [CBSE (F) 2011]
9. Explain how changes in prices of other products influence the supply of a given product. [CBSE Delhi 2012]
10. Explain how changes in prices of inputs influence the supply of a product.[CBSE (Al) 2012]
Or
Explain how input prices are a determinant of supply of a good by a firm. [CBSE (AI) 2014]
11. Explain the distinction between "change in quantity supplied" and "change in supply". Use diagram.
Or[CBSE (AI) 2012]
Explain the distinction between "movement along the supply curve" and "shift of supply curve". Use diagrams.
[CBSE (F) 2013]
12. Draw supply curves showing price elasticity of supply equal to (i) zero, (ii) one, and (iii) infinity throughout. [CBSE 2012]
13. How does the change In tax on a product influence the supply of that product? Explain. [CBSE (F) 2012]
Or
How does change in per unit tax influence the supply of a good by a firm? Explain. [CBSE (F) 2014]
14. When the price of a good rises from Rs.20 per unit to Rs.30 per unit, the revenue of the firm producing this good rises from
Rs.100 to Rs.300. Calculate the price elasticity of supply. [CBSE Delhi 2013]
15. A firm's revenue rises from Rs.400 to Rs.500 when the price of its product rises from Rs.20 per unit to Rs.25 per unit.
Calculate the price elasticity of supply. [CBSE Delhi 2013]
16. The price elasticity of supply of a good is 0.8. Its price rises by 50 per cent. Calculate the percentage increase in its supply.
[CBSE Delhi 2013]
17. Give one reason for an "increase" in supply of a commodity. [CBSE (Al) 2013]
18. Give one reason for "decrease" in supply of a commodity. [CBSE (Al) 2013]
19. Give the meaning of market supply. [CBSE (AI) 2013]
Or
Define market supply. [CBSE (F) 2013]
Or
What is market supply of a product? [CBSE (Al) 2014]
20. A firm supplies 10 units of a good at a price of Rs.5 per unit. Price elasticity of supply is 1.25. What quantity will the firm
supply at a price of Rs.7 per unit? [CBSE (Al) 2013]
21. The price elasticity of supply of a commodity is 2.0. A firm supplies 200 units of it at a price of Rs.8 per unit. At what price
will it supply 250 units? [CBSE (AI) 2013]
22. A 15 per cent rise in the price of a commodity raises its supply from 300 units to 345 units. Calculate its price elasticity of
supply.[CBSE (AI) 2013]
23. When is supply of a good said to be inelastic? [CBSE (F) 2013]
24. Explain the distinction between "decrease in supply" and "contraction in supply". Use diagrams. [Page 261-264]
25. Total revenue of a firm rises from Rs.400 to Rs.500 when the price of its product rises from Rs.8 per unit to Rs.10 per unit.
Calculate the price elasticity of supply. [CBSE (F) 2013]
26. A fall in the price of a firm's product results in a fall in its supply by 40 per cent. Its price elasticity of supply is 1.6. Calculate
the percentage fall in its price. [CBSE (F) 2013]
27. Price elasticity of supply of a good is 2. By what percentage should its price rise so that its supply rises by 30 per cent?
[CBSE (F) 2013]


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JVM INSTITUTE BY LALIT KUKREJA JI 9213922047,9899009023

C. MEANING OF INDIVIDUAL SUPPLY

JVM INSTITUTE 9899009023, 9213922047 Page 1

E. Individual Supply Function

F. Individual Supply Schedule

JVM INSTITUTE 9899009023, 9213922047 Page 2

H. MEANING OF MARKET SUPPLY

I. DETERMINANTS OF MARKET SUPPLY:-

J. MARKET SUPPLY FUNCTION

JVM INSTITUTE 9899009023, 9213922047 Page 3

K. Market Supply Schedule

JVM INSTITUTE 9899009023, 9213922047 Page 4

Table 9.3: Supply Schedule

N. Reasons for Law of Supply

JVM INSTITUTE 9899009023, 9213922047 Page 5

O. Exceptions to Law of Supply

JVM INSTITUTE 9899009023, 9213922047 Page 6

Q. DIFFERENCE BETWEEN MOVEMENT ALONG SUPPLY CURVE AND SHIFT IN SUPPLY

JVM INSTITUTE 9899009023, 9213922047 Page 7

R. DIFFERENCE BETWEEN EXPANSION IN SUPPLY AND CONTRACTION IN SUPPLY

T. DIFFERENCE BETWEEN INCREASE IN SUPPLY AND DECREASE IN SUPPLY

JVM INSTITUTE 9899009023, 9213922047 Page 8

(ii) Decrease in Price of other goods:

Change in Price of Factors of Production

JVM INSTITUTE 9899009023, 9213922047 Page 9

Change in the State of Technology

(ii) Degradation of Technology:

JVM INSTITUTE 9899009023, 9213922047 Page 10

(ii) Decrease in Taxes:

Rightward and Leftward Shift in Supply Curve

JVM INSTITUTE 9899009023, 9213922047 Page 11

PRICE ELASTICITY OF SUPPLY

MEANING OF PRICE ELASTICITY OF SUPPLY

METHODS FOR MEASURING PRICE ELASTICITY OF SUPPLY

1 • Percentage change in Quantity supplied =

4. Change in Price (AP) = New Price(P 1)-Initial Price (P)

JVM INSTITUTE 9899009023, 9213922047 Page 12

Elasticity of Supply (Proportionate Method) =

Table 9.8: Perfectly Elastic Supply

JVM INSTITUTE 9899009023, 9213922047 Page 13

Table 9.10: Highly Elastic Supply

JVM INSTITUTE 9899009023, 9213922047 Page 14

JVM INSTITUTE 9899009023, 9213922047 Page 15

REVISION OF KEY POINTS

JVM INSTITUTE 9899009023, 9213922047 Page 16

A. Multiple Choice Questions: Choose the Correct Answer

2. Graphical presentation of supply curve of an individual firm in the market is called:

4. According to law of supply:

JVM INSTITUTE 9899009023, 9213922047 Page 17

6. The law of supply does not apply to:

7. Supply curve shifts forward due to:

8. Movement along the supply curve occurs due to:

9. Increase in quantity supplied due to rise in price is called:

11. In case of contraction of supply, we move:

12. In case of increase in supply, we move:

13. Imposition of a unit tax, shifts the supply curve:

14. Subsidy on the production of a commodity causes:

15. When supply curve is a vertical straight line, it indicates:

JVM INSTITUTE 9899009023, 9213922047 Page 18

18. When supply curve is parallel to X-axis, elasticity of supply is:

19. Supply is more elastic in case of:

20. The supply of durable goods is usually:

21. In case of Es > 1, the supply curve is: