LAW OF SUPPLY

The law of supply states that the relationship between price and supply
of a product.
According to the law of supply, the quantity supplied increases with a
rise in the price of a commodity and vice versa while other factors are
constant. The other factors may include customer preferences, size of the
market, size of population, etc.

CHANGE IN SUPPLY
Change in supply refers to increase or decrease in the supply of a product
due to various determinants of supply other than price (in this case,
price is constant).
It is measured by shifts in supply curve.
The terms, while a change in supply means an increase or decrease in
supply.

 Increase In Supply
An increase in supply takes place when a supplier is willing to offer large
quantities of products in the market at the same price due to various
reasons, such as improvement in production techniques, fall in prices of
factors of production, and reduction in taxes.
  Decrease In Supply
A decrease in supply occurs when a supplier is willing to offer small
quantities of products in the market at the same price due to increase in
taxes, low agricultural production, high costs of labour, unfavourable
weather conditions, etc.

CHANGE IN QUANTITY SUPPLIED

Change in quantity supplied occurs due to rise or fall in product prices
while other factors are constant.
It can be measured by the Movement along Supply Curve.
The term, change in quantity supplied refers to expansion or
contraction of supply.

 Expansion or extension of Supply: When there are large quantities of a

good supplied at higher prices, it is known as expansion or extension of
supply.
  Contraction Of Supply

Contraction of supply occurs when smaller quantities of goods are

supplied even at reduced prices.

ELASTICITY OF SUPPLY
Elasticity of supply is a measure of the degree of change in the
quantity supplied of a commodity in response to a change in its price.
The supply of a commodity is said to be elastic when as a result of a
change in price, the supply changes sufficiently as a quick response.
Contrarily, if there is no change or negligible change in supply or
supply pays no response, it is elastic.
Mathematically, the elasticity of supply is expressed as:
TYPES OF ELASTICITY OF SUPPLY
Based on the rate of change, the types of price elasticity of supply is
grouped into five main categories as follows:
1. Perfectly elastic supply
2. Perfectly Inelastic Supply
3. Relatively Elastic Supply
4. Relatively Inelastic Supply
5. Unitary Elastic Supply

1. Perfectly Elastic Supply

When a proportionate change (increase/ decrease) in the price of a
commodity results in an increase/decrease of quantity supplied, it is
called a perfectly elastic supply.
Es = ∞
This situation is imaginary as there is no such commodity whose supply
is perfectly elastic.
 2. Perfectly Inelastic Supply
The quantity supplied does not change with respect to a proportionate change in
the price of a product. In other words, the quantity supplied remains constant at
the change in price when supply is perfectly inelastic.

Es = 0
However, this situation is imaginary as there can be no commodity whose
supply could be perfectly inelastic.

3. Unitary Elastic Supply

When the proportionate change in the quantity supplied is equal to the
proportionate change in the price of a product, the supply is unitary
elastic.
Es = 1
 4. More than Unitary Elastic
The elasticity of supply is said to be more than unitary when a
proportionate change in a price of commodity causes increase in the
supply of a commodity.

5. Less than Unitary Elastic

The elasticity of supply is said to be less than unitary when a
proportionate change in a price of commodity causes comparatively less
increase in the supply of a commodity.