18 r;

_,fie< rtr w dlat W.• thlaaa

____ .. ha 'IIWldtr "'PPll.l ~ ...... 111
,,J,tr Wl,Js more of a commodity l llld ..~nL • lncnue ln the price of a commodity leads
a supplied
.._.- · behind the law of supplY
....011 at hlgh,r prlcts than at 1ower prices.
•

111
,....
ncreasc
- .J
ln price leads to higher
S l I wh
A
pro t ma. of the producer .md · h'1
anou•IY· ,m, ar Y• en the price· of th rgan
~ng him to produa, lesser quan . c conunodity fall 'i
ucmg m to produce more quantity of the
• ~ cads to reduced profit margin of the producer,
51 1
.-.ltcd of a commodity. Thercfo tlty. Thus, there is a
1111'1'" • f th 1 re, supplY curve is an posmve d (di rect) re Iauon
· between pnce. and quantity
,vsuntpuons o c aw of suppl upwar sloping curve.
. . . th y
'()thcr th ings remammg
· e same' .mthclaw O f
(i) Input pnccs (or prices of fa ctors of d supply means·•
the same. pro uction) remain
(ii) There is no change in techni
· f th que of prod · s
(iii) Pnccs o o er goods in pro d uct1on
. r uction.
• 20
(iv) Tax on th e commodity (e.g., GST) emam unchanged.
does not change 15

Supply SCbedule · 10

'fhc law of supply can be explained with th 5 s

schedule. e help of a supply
200 300 X
100
Supply schedule . . is a tabular presentatton . sh . th Quantity Supplied

different quanuues of a good that a firm is willin owing e

at different prices du.ring a given period of time g to supply Figure 3.9

Table 3.12 Supply Curve of a Good X

• •20 shows
th that. as price of the good . ·
X increases from The s~pply curve is upward sloping. More of the good Xis
, 10 to ,. Th
, e quantity
h . supplied incre r
ases rrom 100 umts . to supplied at higher prices than at lower prices by a
300 units. us, t ere 1s a positive relat'wns h·1p between · producer. As price of good X increases from ~1 Oto ~O the
quantity supplied increases from 100 units to 300 units.'
and quantity supplied of good X. pnce

TABLE 3.12: Representation of Law of Supply

• •
y

s
200

20 300

Supply curve
Supply curve is a graphical presentation which shows the
quantities of a commodity supplied at various prices during I
pl! a given period of time. Supply
Slope of Supply Curve
A linear supply curve can be written as:
qs =a+ hp
Figure 3.10 depicts a linear supply curve.
• 'a is the intercept (at price 0, the supply is 'a')
• 'b' is the slope of the supply curve.
Slope of a function measures the change in dependent variable due to change in the independent variable. Since in
the supply function, quantity supplied (q) depends uPon price (p), therefore, slope of supply curve is given by ll.qlll.p.
The slope of the supply curve measures the rate at wbich supply change, due to change in price, i.e., 6'¥69
 produ
uppl u
It n to rl or fall
n an t oth r than the own
H ri ln upply l called 'Increase i~
th fall in suppl la called decrease in supply •
UIISttamm nail change in supply means shift of supply
In c (decrease) in supply leads to a rightward
d'tward) shift of the supply curve.
Increase in supply
lncreue in -,ply means supply increases due to Change in Supply (Shifts in the supply cu
fa10lll'Ule c:lwap in facton affecting supply other than When the producer moves from A to B, the P~•l
commodity X remains unchanged at OP While th Of~
the OW'll price of the good, e.g. technological progress or curve shifts rightwards from SS to S1S1. The PrOde ~
fall in prias of facton of production. now be willing to produce more quantity at the sa uce, 'tlil
OP. Therefore, the supply increases from OQ to 0;e ~
TABLE 3.13: Increase in Supply When the producer moves from A to C, the Pri •
1

commodity X remains unchanged at OP While th~ sOf ~

FIO~
-..;;;;;~J@Mij:i@ ~
10
50
70
~
curve shifts leftwards from SS to S2S2. The PrOdu u~
now be willing to produce less quantity at the sa cer ~
OP. Therefore, the supply decreases from OQ to a:.
Price

Table 3.13 shows that price of the goo~ remaining co~stam_ at t 10 per uni~ due to change in ~y other facto
(e.g., fall in input price), the firm supplies more quantity of 1t at the same pnce, say from 50 urnts to 70 units
Decrease in supply
Decrease in supply means supply decreases due to unfavourable change in factors affecting sup
1
other than the own price of the good, e.g. technology becomes obsolete or rise in prices of factorspo
production.
TABLE 3.14: Decrease in Supply

Table 3.14 shows that price of the good remaining constant at~ 10 per unit, any other factor (e.g., increase
taxes), the firm may supply less quantity of it at the same price, say from 50 units to 30 units.

Change in O 1 ~nttty Supplie f~ovPments along the supply curve)

Change in quantity supplied refers to rise/fall in supply due to change in own price of the good, o
factors like technology and the prices of factors of production remaining constant.
Other things remaining the same, any change in the price of the good leads to a movement along its
curve. A rise (fall) in the price of the good leads to upward (downward) movement along the supply am
This is also called change in quantity supplied. It refers to rise or fall in supply due to change in own pn
good, other things remaining unchanged. Here, rise in supply is called 'extension/expansion of uppl
fall in supply is called 'contraction of supply'.
 ft
p (downward)
. . . . lnquandtylllppbed . . _ .
It..- rile ln lupply d111 to rlee In on of Supply) P1
N
..... oda• facton ftlnlinbaa co.._t.Olnl Price of the
p
TABLE 3.15: Encnsion rs M
O Upply P2
I

'
11 '
'
70 '
Tahir 3.15 shows that when price of the good . 0
Q2 Q Qi X
unit ro f 11 per unit, its supply rises &om n~ &om flO per Quantity Supplied
• • 50 llIUts to 70 units.
Dt,.icmt ID quantity Sllpplicd (Contraaj f
It means fall in supply due to fall in o~n o. Supply) Change in Quantity Supplied
-.wl other factors rem~i ... :- Pnce of the (Movements along the supply curve)
~' --uug constant. When the producer moves from M to N, the rise in supply of
TABLE 3.16: Contraction f S l the commodity Y from OQ to OQ1 is due to rise in its own
o uppy price from OP to OP1. There is upward movement along
the same supply curve SS.
When the producer moves from M to L, the fall in supply of
so the commodity Y from OQ to OQ2 is due to fall in its own
price from OP to OP2. There is downward movement along
30
the same supply curve SS (towards the origin).
Factors affecting Supply of a commodity
1. Change in own price of the good
• Other factors like technology and · f£ f d · · · · · h
. . pnces o ractors o pro uction remammg constant, an increase m t e
pnce of a "'.'mmod.tcy l"".ds to an increase in quantity supplied (Expansion/Extension of Supply). This is
because an increase m pnce leads to higher profit margin of the producer, inducing him to produce more
quantity of the commodity. There will be upward movement along the same supply curve.
Figure 3.12 shows that the supply of the good X increases from OQ to OQ, as a result of rise in price from
OP to OP1, It leads to an upward movement along the same supply curve SS.
• When the price of the commodity falls, it leads to reduced profit margin of the producer, forcing him
to produce lesser quantity (Contraction of Supply). There will be downward movement along the same
supply curve (towards the origin).
Figure 3.12 shows that the supply of the good X decreases from OQ to 0(1 as a result of rise in price from
OP to OP2• It leads to a downward movement along the same supply curve SS.
2. State of technology
Technological progress (improvement in technique of production) raises productivity and brings down per unit
cost of production. So, the profit margin of the producer rises and hence the producer will be induced to
produce more quantity of the commodity at the given price. It is called increase in supply. Supply curve of the
commodity will shift rightwards. . .
Figure 3.13 shows that the supply of the good X increases from Oq to Oq1at the same pnce Op due to 1mprovc:menc
·m teehmque
· of pro ducnon. · It leads to a rightward shift in the supply curve of good X from
. SS tof S1S,.d · ·
0 n the contrary, 1·f teehno Iogy becomes obsolete ' productivity decreases.. So, .per umt cost o dpro ucuon, 1.e.,
ft
· p ·
average cost increases. nee o f the product remaining unchanged, mcrease
As m averageI cost h'fi
ecreases pro tt5.
leftwird
Th ererore,
r t he pro d ucer dec reases supply of output at the same price. a resu1t, supp y curve s I ts
 OWi
oogybecom

OL------=qz--q~---
X
Supply ofX

J. 0•111" ID pri<:ICS of faclolS of production (ChaJtge in input prices)

Wl,cl1 pna of factor ,npu< Wis, profit margin of rhe producer rises, inducing him to produce more

~
thc good ar the given pri<X, It is called increase in supply. Supply curve of the good will shift rightwar!'"tity,
Rgu« 3 t 5 that the sopply of the good X increase• from Oq 10 Oq, at the same1 price
1
&cror inpll" &II. 1rJ,.ds to a righiward shift in the supply curve of good X from SS to S S •
Op whe · .
n Pnc,,
of! bI• "'lo\
On the other t,,nd, when price of f.ictor input producing the Good X rises, e.g., if the wage rate nee
~
profit rn,rgin of the producer Wis, forcing him to produce less quantity of Good X at the given p . a our ti""

cJ,a,a,e in sopply. Supply curve of Good X will shift Jefrwards. 2

· t IS "11,i
F,gurd.16 shows that the supply of the good X decreases from Oq to Oq at the same price2 o2· h
factor inputs increase• It leads to a leftward shift in the supply curve of good X from SS to s S p w en prices of

y S2
Lettward shift in
supply curve good X
s
y RightWllrd shift in due to rise in prices
supply a.1rve of good X >< of factor inputs.
due to fall in pnces of 0
)( fadOr inputs.
'& ~ p
·c
8 p.....-----+-~!...-- 0.
'C
A,
s
'
I
I
I

o--~q2· -~--___.!I,
q X
o.___----::--_;__-~
q Q1 X
Supply of X
Supply of X

Figure 3.16

4. Government Taxation p0 1·
icy
of the ;:du~;•
If the .
~;r~re, profit margin
government increases t
in supply..
ed decrease Goods
Su 1 falls, andhim
forcing Services Tax (GST
to prod l ), the cost of production
1 ftwess quant"
X will shiftuce
pp y curve of G d
incr
f Good X at the given tty O
00 e ards · Figure 3.17 shows chat the
 .
I
d '1L Therefore, profit
.,-- . ~.
11N • me pen price. It is called
.,.. . ·1 Cl-Otta It the aame price Op if the govem-

M
..........
ua,■••-~
.......... Ina ...
. . GST..._ s
d\tne of aood X from SS to S2~.
y
Rightward shift In supply
curve of good x If the
I )C
government decreases
the GST rate. s
I p

'
·c8
A.
p

s
s
o---""""'.q;;-:1~-:q~----~
X 0 q
SupplyofX Q2 X
Supply of X

;. Change in prices of other goods in production

Suppose a firm produces two goods X and Y. X is the given good and Y is the other good in production. If price
of good Y rises, it becomes relatively more profitable to produce good Yin comparison to the given good X. This
results in diversion of resources from the production of good X to good Y. Therefore, the supply of the good X
decreases at the same price. As a result, supply curve of the good X shifts leftwards.
Similarly, fall in the price of other good Y increases the supply of the given good X leading to a rightward shift of
its supply curve at the same price.