Supply

Supply refers to quantity of a commodity that a firm is

willing & able to offer for sale at a given price during a given
period of time.

The Definition of demand highlights four essential elements of demand:

(i) Quantity of the Commodity (ii) Willingness to sell
(iii) Price of the Commodity (iv) Period of Time
 Determinants of Supply (Individual)

1. Price of the Given Commodity

2. Price of Other Goods
3. Prices of the Factor of Production or Inputs
4. State of Technology
5. Govt. Policy (Taxes & Subsidies)
6. Goals/ Objective of the Firm
 Determinants of Supply (Market Supply)

6. No. of Firms in the Market

7. Future Expectations regarding Price
8. Means of Transport & Communication
 Law of Supply

Law of Supply states the direct relationship between price &

quantity supplied, keeping other factors constant (ceteris
paribus).
 Law of Supply
Assumptions of Law of Supply
While stating the law of supply, we use the phase ‘keeping other factors constant or ceteris
paribus’. This phrase is used to cover the following assumptions on which the law is based:

1. Price of other goods is constant

2. There is no change in the state of Technology.
3. Price of factors of production remain the same.
4. There is no change in taxation Policy.
5. Goals of the producer remain the same.
Law of Supply
Reasons for Law of Supply

1. Profit Motive
2. Change in Number of Firms
3. Change in Stock
Law of Supply
Exceptions to Law of Supply

1. Future Expectations
2. Agricultural Goods
3. Perishable Goods
4. Rare Articles
5. Backward Countries
 Supply Schedule
A Supply Schedule is a tabular statement showing various quantities of a commodity
being supplied at various levels of price , during a given period of time.
Individual Supply Schedule Market Supply Schedule
It refers to a tabular statement showing various It refers to a tabular statement showing various
quantities of a commodity that a producer is quantities of a commodity that all the producers
willing to sell at various level of price, during a ity are willing to sell at various levels of price, during
given period of time. a given period of time.
Individual Supply Units Market Supply Units
Price per Quantity Supplied by Quantity Supplied by Market Supply (Kg)
Unit (Rs.) Producer 1 (Kg) Producer 2 (Kg) {P1 + P2}
1 5 15 20
2 10 20 30
3 15 25 40
4 20 30 50
5 25 35 60
 Supply Curve
Individual Supply Curve & Market Supply Curve

5 Market Supply Curve (MS) is obtained

by horizontal summation of the
4
Individual Supply Curves (P1 & P2)
3

1
P1 P2 MS

10 20 30 40 50 60
 Supply Curve
Movement along the Supply Curve (Change in Quantity Supplied)

S When Quantity supplied of a

4
commodity changes due to a
change in its own price, keeping
3 B
Price (in Rs.)

other factors constant, it is

known as change in quantity
2 A
supplied.
1
C • It is graphically expressed
S
as a movement along the
10 20 30 40 same supply curve.
Quantity supplied (in units)
 Change in Quantity Supplied (Movement along the Supply Curve)

Expansion in Supply (Upward Movement) Contraction in Supply(downward Movement)

Expansion in supply refers to a rise in the quantity Contraction in supply refers to a fall in the quantity
supplied due to rise in the price of commodity, other supplied due to fall in the price of commodity, other
factors remaining constant. factors remaining constant.

A
25 20
B

Price
Price

Price Supply Price Supply

(Rs.) (units) (Rs.) (units)
B
20 20 100 15 20 100
A
25 150 15 70

100 150 70 100

Quantity Supplied (in units) Quantity Supplied (in units)
 Law of Supply
Important Facts

1. Positive Relationship
2. Qualitative statement, not Quantitative
3. No Proportional Relationship
4. One Sided
 Change in Quantity Supplied
Occurs due to

Change in Price
Leads to

Movement along the supply curve

Either Or
Upward Movement Downward Movement

knowns as knowns as
Expansion in Supply Contraction in Supply
(due to increase in Price) (due to decrease in Price)
 Supply Curve
Shift in Supply curve (Change in Supply)
S2
S When the supply of a commodity
changes due to a change in any
S1
factor other than the own price
Price (in Rs.)

of the commodity, it is known as

P change in Supply.
S2
• It is graphically expressed
S
S1
as a shift in Supply
20 40 60 80 100
curve.
Quantity Supplied (in units)
 Determinants of Supply (Individual)

1. Price of the Given Commodity

2. Price of Other Goods
3. Prices of the Factor of Production or Inputs
4. State of Technology
5. Govt. Policy (Taxes & Subsidies)
6. Goals/ Objective of the Firm
 Determinants of Supply (Market Supply)

6. No. of Firms in the Market

7. Future Expectations regarding Price
8. Means of Transport & Communication
 Change in Supply (Shift in supply Curve)
Increase in Supply (Rightward Shift)
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.
S
S1
Decrease in Supply (Leftward Shift)
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.
S1 S

P P
Price Supply
Price (in Rs.)

Price (in Rs.)

Price Supply (Rs.) (units)
(Rs.) (units)
20 100
20 100
20 70
S 20 150 S1
S1 S

100 150 70 100

Quantity Supplied (in units) Quantity Supplied (in units)
 Change in Supply
Occurs due to

Change in Factors other than price

Leads to

Shift in Supply Curve

Either Or
Rightward Shift Leftward Shift
known as known as

Increase in Supply (due to favourable Decrease in Supply (due to unfavourable

change in other factors at the same price) change in other factors at the same price)
 Rightward Shift in Supply Curve
• Decrease in Price of other goods.
• Decrease in price of factors of
production (inputs)
• Advanced & Improved technology
• Decrease in taxes
• Increase in No. of Firms
• Improvement in means of Transport
• Expectation of future fall in price
Leftward Shift in Supply Curve
• Increase in Price of other goods
• Increase in price of factors of
production (inputs)
• Complex & Outdated technology
• Increase in Taxes
• Decrease in No. of Firms
• Poor means of Transport
• Expectation of future rise in price
 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.
For E.g., If price elasticity of supply is 2, it means that one percent
fall in price leads to 2 percent fall in supply or one percent rise in
price leads to 2 percent rise in supply.
 Percentage Method for Measuring
% Price Elasticity of Supply
According to this method, elasticity is measured as the ratio of percentage
change in quantity supplied to percentage change in price.
Price Elasticity of Supply (𝑬𝒔 ) = Percentage Change in Quantity Supplied
Percentage Change in Price
Change in Quantity Supplied (∆Q)
1. Percentage change in Quantity Supplied = × 100
Initial Quantity Supplied (Q)
2. Change in Quantity (∆ Q) = New Quantity (𝑸𝟏 ) – Initial Quantity (Q)

Change in Price (∆P)

3. Percentage Change in Price = × 100
Initial Price (P)
4. Change in Price (∆ P) = New Price (𝑷𝟏 ) – Initial Price (P)
 Proportionate Method

The percentage method can also be converted into the

proportionate method.

∆𝑄 𝑃
Price Elasticity of Supply (𝑬𝒔 ) = ∆𝑃
×
𝑄

∆𝑸 ∆𝑸
×𝟏𝟎𝟎
𝑸 𝑸 ∆𝑸 𝑷
(𝑬𝒔 ) = ∆𝑷 (𝑬𝒔 ) = ∆𝑷 (𝑬𝒔 ) = ∆𝑷
×
𝑸
×𝟏𝟎𝟎
𝑷 𝑷
❑ Elasticity is a ‘Unit Free’ Measure
The coefficient of price elasticity of supply is a pure number & is
independent of price & quantity units. It happens because elasticity
considers percentage change in price & quantity supplied.

❑ 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 b/w price & quantity supplied.
 Kinds of Elasticities of Supply
1. Perfectly Elastic Supply
Y
𝑬𝒔 = ∞ Price(Rs.) Supply (units)
30 100
P SS 30 200
Price (in Rs.)

30 300
When there is an infinite supply at a particular price
& the supply becomes zero with a slight fall in price,
Q1 Q Q2
X then the supply of such a commodity is said to be
Quantity Supplied (in units) perfectly elastic.
𝑬𝒔 = ∞ & the supply curve is horizontal straight line parallel to
the X-axis.
 Kinds of Elasticities of Supply
Y SS
2. Perfectly Inelastic Supply
Price(Rs.) Supply (units)
𝑷𝟐
20 100
P 30 100
Price (in Rs.)

𝑬𝒔 = 𝟎 40 100
𝑷𝟏

When the supply does not change with change in

X price, then supply for such commodity is said to be
Q
Quantity Supplied (in units) perfectly inelastic.

𝑬𝒔 = 𝟎 & the supply curve is a vertical straight line parallel to the

Y-axis.
 Kinds of Elasticities of Supply
3. Highly Elastic Supply
Y
𝑬𝒔 > 1 SS
Price(Rs.) Supply (units)
𝑷𝟏
10 100
P
Price (in Rs.)

15 200

When percentage change in quantity supplied is

X more than the percentage change in price, then
Q Q1
Quantity Supplied (in units)
supply for such a commodity is highly elastic.

𝑬𝒔 > 1 & the supply curve has an intercept on the Y-axis.

 Kinds of Elasticities of Supply
Y SS
Price(Rs.) Supply (units)
𝑷𝟏
10 100
Price (in Rs.)

P 15 120

When percentage change in quantity supplied is

less than the percentage change in price, then
X
Q Q1 supply for such a commodity is less elastic.
Quantity Supplied (in units)

& the supply curve has an intercept on the X-axis.

 Kinds of Elasticities of Supply
5. Unitary Elastic Supply
Y
𝑬𝒔 = 1 SS
Price(Rs.) Supply (units)
𝑷𝟏
10 100
Price (in Rs.)

P 15 150

When percentage change in quantity supplied is

equal to the percentage change in price, then
X
Q Q1 supply for such a commodity is unitary elastic.
Quantity Supplied (in units)

𝑬𝒔 = 1 & the supply curve is a straight line passing through the

origin.